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^^^(PST} HOUSE OF EEPRESENTATIVES {^n^™ 



RETIREMENT FROM 

THE CLASSIFIED CIVIL SERVICE 

OF SUPERANNUATED 

EMPLOYEES 



MESSAGE FROM THE 
PRESIDENT OF THE UNITED STATES 

TRANSMITTING 

REPORT OF THE COMMISSION ON ECON- 
OMY AND EFFICIENCY ON THE SUBJECT 
OF RETIREMENT FROM THE CLASSIFIED 
CIVIL SERVICE OF SUPERANNU- 
ATED EMPLOYEES 




May 6, 191 2. — Referred to the Committee on Reform in the Civil Service 
and ordered to be printed, with illustrations 



62d Congress 



?d^Sor^} HOUSE OF REPEESENTATIVES {^No™'' 

RETIREMENT FROM 

THE CLASSIFIED CIVIL SERVICE 

OF SUPERANNUATED 

EMPLOYEES 



MESSAGE FROM THE 
PRESIDENT OF THE UNITED STATES 

TRANSMITTING 

H-5. '■.,, : 
REPORT OF THE COMMISSION ON ECON- 
OMY AND EFFICIENCY ON THE SUBJECT 
OF RETIREMENT FROM THE CLASSIFIED 
CIVIL SERVICE OF SUPERANNU- 
ATED EMPLOYEES 




May 6, 1912. — Referred to the Committee on Reform in the Civil Service 
and ordered to be printed, with illustrations 



WAShiivlGlCN 
1912 




n. m n^ 



itiV •-<; 



MESSAGE. 



To the Senate and House of Representatives: 

I transmit herewith a report of the Commission on Economy and 
Efficiency on the subject of the retirement from the classified civil 
service of superannuated employees. To the plan proposed in this 
report and set forth in detail in the accompanying draft of a bill I 
give my unqualified approval, because I believe it to be sound in 
principle and just both to the Government and to its employees. 

Necessity for a Retirement Plan. 

It is unnecessary at this time to discuss at length the necessity for 
adopting some plan by which the service may be relieved of the loss 
from the inefficiency of the personnel caused by the retention on the 
rolls, after long and faithful service, of those who have passed the 
age when they can perform a full day's work. The subject is one 
with which all administrative officers are familiar. It has been 
referred to in several messages which I have sent to the Congress and 
in many reports of the heads of departments. It is conceded by 
everyone acquainted with the situation that some action must be 
taken. Under present conditions the loss to the Government will 
continue to increase. Some method other than the summary dis- 
charge of employees when they become inefficient on account of age 
must be adopted. The present practice of retaining such employees 
on the rolls and, as they grow older, expecting from them a smaller 
quantity and lower grade of work can not continue indefinitely with- 
out seriously impairing the efficiency of the entire service and impos- 
ing upon the Government a cost that will be in excess of the expense 
to be incurred by the adoption of a reasonable plan for remedying 
existing conditions. 

Proposed Plan of Retirement. 

The plan submitted by the commission contemplates that each 
employee in the classified service in the executive departments and 
estabhshments at Washington shall be retired as soon as he reaches 
the age of 70 years and shall receive thereafter an annuity equal to 
one-half of Ms annual salary, with the provision that no annuity shall 
exceed $600. 

I invite particular attention to the fact that the plan provides that 
each person hereafter entering the service shall pay the entire expense 

1 



2 RETIREMENT OF SUPERANNUATED EMPLOYEES. 

of his own retirement by contribution from his salary, so that when he 
reaches the age of 70 years the fund he has accumulated will provide 
his retirement allowance. In such a case the only contribution of 
the Government, if any, will be the difference between the interest 
earned by his savings deposited in the Treasury and invested by the 
Government and the rate of 4 per cent per annum. So far as con- 
cerns this class of persons, there certainly can be no reasonable ob- 
jection to the plan, and I doubt if any plan more beneficial both to 
the Government and to the employee could be devised. 

Employees Now in the Service. 

It is evident that the application of the plan only to those who 
hereafter enter the service would not relieve the present condition due 
to superannuation nor save the Government from the constantly 
increasing loss from that cause. It is not practicable for those now 
70 years of age, or for those nearing that age, to provide the cost of 
retirement entirely at their own expense. To meet the existing 
situation and to put a retirement plan into effect immediately there 
must be some contribution by the Government. This contribution 
need be little more in the aggregate than is now the Government's 
loss from inefficiency due to superannuation. After a comparatively 
short period of years the annual payments made by the Government 
will be less than the loss it would sustain if no plan were adopted. 

It is proposed that an employee now in the service who has reached 
the age of 70 years shall be retired and be paid by the United States 
an annuity equal to one-half of his average annual pay for the last 
five years, but no such annuity to exceed $600. As to an employee 
less than 70 years of age, it is proposed that he shall be retired when he 
reaches 70 on an annuity equal to one-half of his average annual pay 
for the entire period of his service (no annuity to exceed $600), and 
that there shall be deducted from his pay until he reaches 70 years 
such an amount, not exceeding 8 per cent of his pay, as, with 4 per 
cent interest, will purchase his annuity. In the case of an employee 
who has but a few years to serve before reaching 70, some contribution 
by the Government will be necessary to supplement his savings in 
order to provide an annuity of a reasonable amount. 

Annuities Limited to $600. 

A retirement plan is only a means to an end and that end is an 
increase of efficiency in the public service. The Government is not 
required to take charge of an employee's finances, nor is it justified 
in doing so except so far as it is necessary to protect the Government 
against the inefficiency of the employee due to superannuation. It 
is my opinion, therefore, that a plan of retirement should be so 
adjusted as to make the least possible demand upon the Government 



EETIEEMEXT OF SUPEEAXXUATED EMPLOYEES. 3 

and at the same time draw from his personal control as little of an 
employee's money as possible. The proposed plan meets these re- 
quirements. While the maximum annuity of S600 is not sufficient 
to provide the luxuries of life, it is enough to insure an employee 
against want, even if he has been so unfortunate as to have made no 
other provision for his declining years. It is sufficient also to render 
ineffectual the appeals so often made to the sympathy of adminis- 
trative officers when they attempt to remove from office an employee 
who has become inefficient through old age. At the same time the 
amount withheld from an employee's salary in order to provide his 
annuity is not sufficient to justify the thrifty in complaining that 
they are being deprived of an excessive portion of their income which 
they could invest more profitably. 

Rate of Interest ox Savings. 

In any compulsory saving plan it is but just that the Government 
should guarantee a reasonable rate of interest to its employees. Four 
per cent is the rate now paid by the Government on deposits of enlisted 
men of the Army and Navy and it is the rate paid by many savings 
banks. The plan recommended by the commission contemplates the 
investment of the savings of employees in the highest class of secu- 
rities and that the United States shall contribute such amount, if any, 
as may be needed to insure the employees receiving 4 per cent per 
annum. 

Application of Plan to Employees in the District of Columbia. 

I am convinced that the application of the plan should be hmited 
for the present to the classified civil service in the executive depart- 
ments and offices at Washington, where the loss from superannuation 
is the greatest. While any plan is in its experimental stage it should 
be kept within narrow fimits. If successful in operation in Wash- 
ington it can be extended as the needs of the service require. 

Cost to the Government. 

It being conceded that no immediate benefit to the Government 
could accrue without some temporary help from it, I cUrected the 
Commission on Economy and Efficiency to make an investigation 
of the loss due to superannuation in the service at Washington. Its 
report sets forth in detail the results of this investigation. It has 
involved an examination of the efficiency of 22,754 employees, as 
such efficiency was reported by the departments. At no other time 
has such a thorough investigation been made of the service in Wash- 
ington. An earnest effort was made to ascertain and to state in 
money the fuiancial loss which is sustained from the inefficiency of 
aged persons in the service. While the loss shown as the result of 



4 EETIEEMENT OF SUPEEANNUATED EMPLOYEES. 

the investigation is undoubtedly much less than the actual loss 
from superannuation, the figures are sufficiently large to justify the 
Government in giving temporary aid in putting the plan into opera- 
tion. Accepting the very conservative figures as to the loss now sus- 
tained, the inefficiency in the service which is due to old age can be 
wiped out immediately and permanently in Washington by an 
average annual expenditure during the next 20 years of $226,986 
over and above the annual loss that will be sustained from superan- 
nuation if no plan is adopted for avoiding it. The accompanying 
report shows further that the saving to the Government that will 
result from the adoption of the proposed plan will equal, in the 
course of the succeeding 16 years, the entire cost of inaugurating the 
plan. 

Straight Pensions Not Advisable. 

I am firmly convinced that the proposed plan is superior to any 
form of straight pensions, in that an employee upon retirement at any 
time may avail himself of his savings with the accrued interest, or his 
representatives may do so in the event of his death, whereas any form 
of pension or gratuity from the Government must inevitably be con- 
sidered as a part of compensation and is available only to those 
employees who succeed in living to a given age, in remainmg in the 
service to that age, and in living a sufficient time beyond that age to 
receive in pension payments the value of their deferred pay. Avoid- 
ing, therefore, the dangers and disadvantages of the straight pension, 
the proposed plan commends itself as satisfactory from the viewpoint 
of the Government and the viewpoint of the employees. It is advan- 
tageous to the Government, since the efficiency of the service will be 
increased by providing the means of retiring those who have reached 
the age of decline. It is advantageous to the employees, since it pro- 
tects them from want in old a^'e with the least interference in their 
private affairs, and makes the service more attractive to the younger 
employees by facilitating promotions to higher salaries and grades at 
earlier ages than is possible under present conditions. 

Conclusion. 

A careful study of the existing situation with reference to super- 
annuation, and a consideration of the worse conditions that will 
appear in the future, leads me again to commend the subject to the 
earnest consideration of the Congress. I believe that the plan pro- 
posed in the commission's carefully prepared and exhaustive report is 
the best that has been devised for meeting the present and future 
needs of the service, and therefore I urge the enactment of the 
necessary legislation to put it into effect at an early date. 

Wm. H. Taft. 

The White House, May 6, 1912. 



I 



REPORT TO THE PRESIDENT 



ON 



RETIREMENT ALLOWANCES 



SUBMITTED BY 

THE COMMISSION ON ECONOMY AND EFFICIENCY 



APRIL, 1912 



TABLE OF OONTEI^TS. 



Efficiency and economy in jDublic service require retirement plan 6 

Need of retirement plan noted by Chief Executive and heads of departments.. 7 

Straight-pension plans versus contributory plans 13 

Objections to straight-pension plans 13 

Costliness of straight-pension plan 14 

Experience of England with straight-pension system 14 

Demoralizing effect of straight-pension system on Government service 16 

Straight-pension system would raise more questions than it would settle 18 

Pension plans suitable for private corporations not appropriate for Gov- 
ernment 18 

Sound contributory plan solution of problem of superannuation in Government 

service 20 

Sound contributory plans proposed in recent years 20 

Calculations as to the cost of establishing these plans 21 

Table I, showing annual appropriation necessary to provide monthly 

annuity to persons in classified service June 30, 1903 22 

Table II, showing annual appropriation necessary to provide quarterly 

annuity to persons in classified service June 30, 1907 23 

Table III, showing total and comparative cost to the Government of 
establishing plan for retiring employees under terms of Perkins and 

Gillett bills 25 

Difference in cost between straight-pension and contributory plan confer- 
ring same benefits 28 

Table IV, showing comparative cost to the Government during first 
35 years of retiring employees on straight pensions and under the 

Perkins bill 29 

Table V, showing comparative cost to the Government during first 35 
years of retiring employees on straight pensions and under the Gil- 
lett bill 31 

Reluctance of Congress to provide for retirement of civil employees on account 

of expense 33 

Expense of establishing proposed contributory plan justified 33 

Arguments of employees against contributory plan answered 33 

Deductions from salaries of employees now in service should be limited. . . 34 

Government should not penalize employees leaving service 35 

Government should pay liberal rate of interest on enforced savings 35 

Both annuity and cash settlements should be arranged to protect interests 

of employee 36 

No danger in savings fund 36 

Commission's effort to ascertain annual loss to Government through inefficiency 

of aged employees 37 

Table VI, showing the number of employees in the classified civil service 
in the District of Columbia 70 years of age and over, the amount of sala- 
ries paid, the amount and per cent of salaries earned, and the amount and 

per cent of salaries unearned, or the loss due to superannuation 38 

3 



4 TABLE OF CONTENTS. 

Commission's effort to ascertain annual loss to Government, etc. — Continued. P'^g^- 
Reluctance of officers to report on individual employees makes figures of 

loss less than the fact 38 

Basis of estimate of future losses from superannuation 39 

Table VII, showing the number of employees in the classified civil service 
in the District of Columbia, distributed according to age, the total salaries 
I^aid, the total salaries earned, the per cent of salary earned, and the per 

cent of salary not earned 39 

Per cent of salary earned at various ages 41 

Age at which loss justifies retirement 41 

Method of calculating future loss to Government from superannuation. ... 43 
Diagram showing the per cent of salary earned, based on department 

reports, and the percentages found by graduation 44 

Table VIII, showing the annual loss that will be sustained by the 
Government during the next 36 years if no plan is adopted for retiring 
employees now in the classified civil service in the District of Colum- 
bia when 70 years of age 45 

Commission's effort to determine what expense the Government is justified in 

incurring to avoid loss from superannuation 45 

Plan presented by the commission 47 

Table IX, showing the total maximum cost of retiring at age 70 all employees 
now in the classified civil service in the District of Columbia on annuities 
equal to one-half jsay (maximum |600), maximum deduction from salary 

8 per cent 48 

( 'ost of establishing proposed plan 48 

Table X, showing the net cost to the Government of establishing the 

plan and the gain to the Government from its establishment 50 

Table XI, showing the deductions required from salaries at various ages. 51 

Recommendations of the commission 52 

Draft of bill 55 

Appendixes 59 



EETIEEMENT ALLOWANCES. 

April 18, 1912. 
The President: 

The Commission on Economy and Efficiency has the honor to sub- 
mit the following report on ''Retirement allowances." The report 
and recommendations apply to the employees in the permanent 
classified service in the executive departments and independent 
Government establishments in the District of Columbia. The plan 
submitted provides for three classes of employees: 

(a) Employees in that service who have reached the age of 70 
years when the plan is put into operation. 

(b) Employees in that service who are less than 70 years of age 
when the plan is put into operation. 

(c) Persons who enter that service after the plan is put into opera- 
tion. 

The essential features of the plan, which are set forth in detail in 
the draft of bill at the end of this report, and which require legisla- 
tion to carry them into effect, are the following: 

1. That an employee now in the service who is 70 years of age be 
retired, and be paid by the United States an annuity equal to one- 
half of his average annual pay for the past five years, but no such 
annuity to exceed $600. 

2. That an employee now under 70 years of age be retired when he 
reaches that age and be paid an annuity equal to one-half of his aver- 
age annual pay for the entire period of service, but no such annuity 
to exceed $600; provided, that there shall be deducted from the pay 
of such employee until he reaches 70 years an amount which, with 
interest at 4 per cent, compounded annually, will purchase such 
annuity, but no monthly deduction shall exceed 8 per cent of the 
monthly pay. 

3. That a person first employed after the retirement plan is put 
into operation shaU provide for the entire cost of his retirement allow- 
ance (which shall be an annuity of one-half of his average annual 
})ay during his entire service, but no annuity to exceed $600), by 
deductions from his current pay of such amounts as may be required^ 
with interest at 4 per cent, compounded annually, to pay his annuity. 

4. That any person separated from the service before the age of 60 
shall receive the amount of deductions made from his pay, with 4 per 
cent interest, compounded annually; after the age of 60, and before 

5 



6 EEPOET TO THE PEESIDENT ON RETIREMENT ALLOWANCES. 

reaching 70, he shall receive the amount with interest in 10 annual 
installments, unless the total amount is less than $600, in which case 
the amount shall be paid at once. In case of death at any time before 
reaching 70, the amount of deductions, with interest, shall be paid to 
his legal representatives. In case of death after 70, the balance re- 
maining to liis credit over and above the sums paid to him in annuities 
shall be paid to his legal representatives. 

5. That the Secretary of the Treasury shall invest the deductions 
and accrued interest thereon in bonds of the United States, States, 
and municipalities; and the United States shall appropriate a sum 
sufficient to assure to employees interest at 4 per cent per annum, 
compounded annually, on all deductions from salaries. 

In the discussion of the subject in this report, the commission has 
presented its reasons for the conclusions it has reached concerning the 
best plan for relieving the Government of the large direct and indirect 
loss due to superannuation among its clerical force in the executive 
service in the District of Columbia. The total cost to the Govern- 
ment during the next 30 years, in pa3aiient of annuities to employees 
to be now retired and of a part of the annuities of those hereafter re- 
tired, will be but a small amount in excess of the loss from superannua- 
tion that will occur if no retirement plan is adopted. The cost for 
those retired on an annuity paid in part by the United States will soon 
thereafter be reduced to an inconsiderable sum, and be much less than 
would be the loss from superannuation. All employees retired after 
30 years from the taking effect of the plan will provide all the money 
needed to pay their own annuities. 

Without doing an injustice to any faithful employee, but on the 
other hand conferring an immediate benefit on many by more rapid 
promotion, the plan will confer a definite and substantial benefit on 
the service as a whole and increase to a marked degree the efficiency 
of the personnel. 

SAVINGS AND ANNUITY PLAN PROPOSED FOR RETIREMENT OF 
CIVIL-SERVICE EMPLOYEES. 

Efficiency and Economy in Public Service Require Retire- 
ment Plan. 

The Commission on Economy and Efficiency has made a thorough 
investigation of the personnel of the civil service in the District of 
Columbia and is convinced that the service can never be brought up 
to the highest possible standard of efliciency until a satisfactory plan 
for the retirement of the aged employees is adopted by the Govern- 
ment. Any comprehensive scheme for the improvement of the civil 
service must include a proper plan of retirement for civil servants. 
While it is true that the laws regulating the civil service do not 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 7 

insure a permanent tenure of office, but on the contrary specifically 
provide for the removal of the inefficient, the fact is well known that 
this provision of law is disregarded whenever inefficiency is the result 
of old age; nor does this commission believe that Congress will insist 
upon administrative officers removing inefficient old people from the 
service so long as no retiring allowance has been provided for them. 
The work of the Government offices must therefore continue to be 
retarded by the inefficiency of aged clerks until such time as a 
retirement law is put into operation. The commission feels, there- 
fore, that it can not lay too great emphasis on the fact that, without 
a provision for retiring aged employees, it is idle to expect either 
thorough efficiency in the public service or the closest economy in 
the expenditure of salary appropriations. 

Need of Retirement Plan Noted by Chief Executive and 
Heads of Departments. 

For years past heads of departments and chiefs of bureaus have 
called attention in their annual reports to the need of a proper system 
of retiring the aged employees, and recently the matter has received 
the special attention of the Chief Executive. 

The subject of superannuation in the public service has received the 
attention of President Taft in three annual messages to Congress. In 
his message to Congress in 1909, under the caption of "Reduction in 
the cost of governmental administration," he recommended legisla- 
tion for the retirement of superannuated civil servants, coupling 
with it a recommendation for an increase of salaries. He said: 

More than this, every reform directed toward improvement in the average efficiency 
of Government employees must depend on the ability of the executive to eliminate 
from the Government service those who are inefficient from any cause, and as the 
degree of efficiency in all the departments is much lessened by the retention of old 
employees who have outlived their energy and usefulness, it is indispensable to any 
proper system of economy that provision be made so that their separation from the 
service shall be easy and inevitable. It is impossible to make such provision unless 
there is adopted a plan of civil pensions. 

Most of the great industrial organizations and many of the well-conducted railways 
of this country are coming to the conclusion that a system of pensions for old employees 
and the substitution therefor of younger and more, energetic servants promotes both 
economy and efficiency of administration. 

I am aware that there is a strong feeling in both Houses of Congress, and jjossibly in 
the country, against the establishment of civil pensions, and that this has, naturally, 
grown out of the heavy burden of military pensions, which it has always been the 
policy of our Government to assume; but I am strongly convinced that no other jjrac- 
tical solution of the difficulties presented by the superannuation of civil servants can 
be found than that of a system of civil pensions. 

The business and expenditures of the Government have expanded enormously since 
the Spanish War, but as the revenues have increased in nearly the same proportion as 
the expenditures until recently the attention of the public and of those responsible 
for the Government has not been fastened upon the question of reducing the cost of 
administration. We can not, in view of the advancing prices of living, hope to save 



8 EEPOET TO THE PRESIDENT ON EETIEEMENT ALLOWANCES. 

money by a reduction in the standard of salaries paid. Indeed, if any change is made 
in that regard, an increase rather than a decrease will be necessary; and the only 
means of economy will be in reducing the number of employees and in obtaining a 
greater average of efficiency from those retained in the service. 

In his next annual message to Congress (1910) President Taft went 
still further and recommended a definite plan — the one discussed in 
this report — and a definite bill, the Gillett bill (H. R. 22013), as 
the one, in his judgment, best calculated to solve satisfactorily the 
problem of superannuation in the civil service. He said: 

It is impossible to proceed far in such an investigation without perceiving the need 
of a suitable means of eliminating from the service the superannuated. This can be 
done in one of two ways; either by straight civil pension or by some form of con- 
tributory plan. 

Careful study of experiments made by foreign governments shows that three serious 
objections to the civil pension payable out of the Public Treasm-y may be brought 
against it by the taxpayer, the administrative officer, and the civil employee, respec- 
tively. A civil pension is bound to become an enormous, continuous, and increasing 
tax on the public exchequer; it is demoralizing to the service since it makes difficult 
the dismissal of incompetent employees after they have partly earned their pension; 
and it is disadvantageous to the main body of employees themselves since it is always 
taken into account in fixing salaries, and only the few who survive and remain in. the 
service until pensionable age receive the value of theii- deferred pay. For this reason 
after a half century of experience under a most liberal pension system, the civil 
servants of England succeeded, about a year ago, in having the system so modified 
as to make it virtually a contributory plan with provision for refund of their theoretical 
contributions. 

The experience of England and other countries shows that neither can a contributory 
plan be successful, human nature being what it is, which does not make provision for 
the return of contributions, with interest, in case of death or resignation before pen- 
sionable age. Followed to its logical conclusion this means that the simplest and 
most independent solution of the problem for both employee and the Government is a 
compulsory savings arrangement, the employee to set aside from his salary a sum suffi- 
cient, with the help of a liberal rate of interest from the Government, to purchase an 
adequate annuity for him on retirement, this accumulation to be inalienably his 
and claimable if he leaves the service before reaching the retu'ement age or by his 
heirs in case of his death. This is the principle upon which the Gillett bill now 
pending is drawn. 

The Gillett bill, however, goes fm'ther, and provides that the Government shall 
contribute to the pension fund of those employees who are now so advanced in age 
that their personal contributions will not be sufficient to create their annuities before 
reaching the retirement age. In my judgment this provision should be amended so 
that the annuities of those employees shall be paid out of the salaries appropriated 
for the positions vacated by retirement, and that the difference between the annuities 
thus granted and the salaries may be used for the employment of efficient clerks at the 
lower grades. If the bill can be thus amended, I recommend its passage, as it will 
initiate a valuable system and ultimately result in a great saving in the public ex- 
penditures. 

In the President's message to Congress, December 21, 1911, it was 
said: 

I have already advocated, in my last annual message, the adoption of a civil-service 
retirement system, with a contributory feature to it so as to reduce to a minimum the 
cost to the Government of the pensions to be paid. After considerable reflection, I am 



REPORT TO THE PEESIDENT ON EETIEEMENT ALLOWANCES. 9 

very much opposed to a pension system that involves no contribution from the em- 
ployees. I think the experience of other Governments justifies this view; but the 
crying necessity for some such contributory system, with possibly a preliminary gov- 
ernmental outlay, in order to cover the initial cost and to set the system going at once 
while the contributions are accumulating, is manifest on every side. Nothing will so 
much promote the economy and efficiency of the Government as such a system. 

In his report for 1911 the Secretary of the Treasury expressed him- 
self in favor of a retiring allowance for the superannuated, as follows: 

The executive departments are suffering extremely for want of a retirement law; 
and all improvements of the public service have to constantly meet the discourage- 
ments of this condition, while much improvement is by this condition discouraged 
even from a beginning. I appeal, therefore, to Congress again, as I have done each 
year, in behalf of such a law. Every consideration of humanity, economy, and 
efiiciency that is conceivably related' to the question calls for action at this session. 

The retirement system which I consider most in the interest of the clerks themselves 
is the contributory system; and that would cost the Government no money whatever — • 
if that were thought to be desirable. That this system could be put into operation 
without increased expenditures, I believe is entirely true; and I think it could be 
adopted with the provision that each department should put it into operation without 
any cost to the Government; but it is at the same time a question whether that would 
be the best course to pursue. This contributory system, if adopted, would leave the 
claims of the clerks to revised or higher salaries unaffected. On the other hand, the 
so-called straight pension — the pension paid wholly by the Government — would take 
the place of any possible advance in salaries for, at any rate, a considerable period, 
notwithstanding the fact that under such a system comparatively few of the clerks 
would ever become beneficiaries. 

However, some system of retiring allowance is so greatly needed as an aid to economy 
and efficiency that I would be glad to see any system adopted which could be put 
into effect immediately; for any system could be changed after experience showed 
its defects. (Annual Report of the Secretary of the Treasury, 1911, p. 7.) 

In his report for 1911 the Secretary of War called attention to the 
need of a plan for the retirement of the aged employees as follows: 

I am heartily in favor of some measure by which employees of the Federal Gov- 
ernment may be retired and pensioned when they reach a condition of impaired use- 
fulness after years of faithful service. In taking such action we should only be fol- 
lowing the world-wide trend of national Governments and large business corporations, 
whether we find warrant for such action in humanitarian principles or considerations 
of a sound business policy, or both combined. 

The purely monetary rewards and opportunities of the Government service ought 
not to be and never will be so great as those offered in the business and professional 
world elsewhere, and if the Government service is to be maintained upon a high and 
increasing level of proficiency it must meet the competition from other quarters by ^ 
some compensating features that will attract the best talent to its service and retain it. '>^ 

While I am not prepared to express a decided conviction as between a straight-out V 
Government pension and one to which the employee himself shall have contributed \ 
a portion, there is abundant proof that the Government, in effect, though indirectly, 
has for many years throughout its service maintained a pension system without retire- 
ment, and if it should now establish a pension system with retirement there is good 
reason to believe that in the long run it would not only suffer no pecuniary loss, but 
on the contrary would reap a substantial gain in the increased efficiency and improved 
morale of the service. (Annual Report of the Secretary of War, 1911, p. 33.) 
42245— H. Doc. 732, 62-2 2 



10 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

In his report for 1911 the Postmaster General called attention to the 
need of a system of retiring the aged employees, as follows : 

Almost without exception foreign nations provide for the pensioning of civil-service 
employees when they become superannuated. Large corporations in this country are 
rapidly adopting the same principle in the retirement of their aged employees. On 
business grounds, if for no other reason, the Government should do likewise. 

While the compensation of postal employees has been considerably increased dur- 
ing the last few years, it is hardly more than sufficient to meet necessary living expenses 
and consequently does not permit the putting aside of any considerable savings against 
old age. It is believed that a civil pension based on length of employment should be 
granted by the Government. Benefits to the service far outweighing the expense of 
such pensions would undoubtedly result. (Annual Report of the Postmaster General, 
1911, p. 15.) 

The Secretary of the Navy said in his annual report for 1911: 

Not only should increased compensation be provided for the clerks, but legislation 
should be enacted looking to the establishment of some form of civil-service retirement. 
I am not prepared at this time to advocate any particular system, believing that this 
is a matter which should be determined by Congress after careful consideration; but 
unless some provision be made for the pensioning or retiring of superannuated civil 
-employees the Government can never hope to secure the most efficient and satisfactory 
service. 

There is no class of employees who are more deserving of increased compensation 
and retirement with reasonable pay than the employees of the Government. Very 
few of them are able to accumulate much, if anything, during their long years of 
service, and when old-age disability does come to them they must either be carried 
as a burden on the Government's rolls or thrown out on the world with no suitable 
provision for their last years. 

But, aside from all sentimental considerations, 1 believe that civil-service retire- 
ment by the Government would be along the line of sound business management. 
Many railroads and industrial corporations have found it advisable to adopt such a 
system, and the practice is a growing one. 

I earnestly recommend that suitable legislation be had in this matter. (Annual 
Report of the Secretary of the Navy, 1911, p. 18.) 

In his last annual report (1911) the Secretary of the Interior treats 
of the subject as follows. He says: 

I earnestly recommend the enactment of legislation authorizing the retirement of 
employees who, after long and faithful service, are disabled by age or infirmity from 
the efficient performance of their duties. The civil servants of the Government, like 
those in the military and naval service, are debarred from the chance of large gains, 
the hope of which is a constant stimulus to men in private business. Moreover, those 
of technical or superior administrative ability are and must continue to be paid smaller 
salaries than they would command in private employment. It is therefore impossible 
for them to acquire financial independence or make due provision for old age, either 
by way of profits or by way of savings from their salaries. Considerations of humanity 
and justice might well be urged against the dismissal of employees who have given the 
years of their strength to faithful and efficient public service and against their assign- 
ment to the lower grades of menial or clerical duties as an alternative to dismissal. 
But 1 prefer to put the matter on other and more selfish grounds. The Government 
simply can not afford not to retire these employees with due and honorable provision 
for their old age, and this for two reasons. 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 11 

In the first place, many able and energetic men serve the Government at salaries 
far below the commercial standard for like services. They choose to do so because 
the public service satisfies their best and highest ideals of personal integrity and 
professional achievement. Such men are continually forced out of the service by the 
necessity of making due provision for themselves and their families before old age 
comes upon them. If the Government would insure them against this peril, it could 
continue to employ them at salaries far less than a private corporation would be com- 
pelled to pay. Every consideration of economy and sound business policy requires 
that their services should be retained on terms so favorable to the Government. The 
loss, taken in the mass, is irreparable, for the system operates as a survival of the 
unfittest by continually drawing off the more energetic and abler men, leaving a 
larger and larger proportion of the inefficient in the public service. In the second 
place, the Government is paying much, if not most, of the cost of a proper retirement 
system through the inevitable relative inefficiency of the present plan. Not only 
are superannuated employees dropped to and retained in the lower grades because of 
sympathy yielding to personal or politica} pressure, but in the higher grades, from 
which the rank and file of the service inevitably derives its spirit and tone, there is a 
tendency to retain men who have lost the alertness and enthusiasm essential to the 
highest efficiency of their own work, and still more essential for inspiring in and 
requiring of their subordinates such alertness and enthusiasm. Not only do they 
thus fail to make the positive contribution to the general efficiency of the service 
which is due from men in their position, but they have a negative effect in the same 
direction by blocking the avenues of promotion and legitimate ambition. The men 
below them not only fail to receive the proper stimulus of precept and example, but 
are at the same time deprived of the hope of promotion which ought to be the reward 
of efficient service. 

This condition is now becoming apparent. It has been delayed by the fact that the 
widespread application of the principle of permanency in the public service goes back 
less than one generation, and by the further fact that the industrial and social problems 
of recent years have forced the Government into new fields of activity and thus com- 
pelled the organization of new bureaus and departments. These new administrative 
units have been largely recruited from young men who are still m the prime of life. 
Many of the older bureaus and departments have from similar causes largely increased 
their personnel, recruiting them chiefly from young men. This sudden expansion of 
governmental activities has postponed and mitigated the worst evils inherent in the 
present system; but sudden expansion can not continue indefinitely. We must face 
and provide for normal conditions of growth . Under such conditions general efficiency 
in the public service is impossible without due provision for the retirement of aged 
employees. This is attested by the experience and practice of foreign governments, 
which have long had a permanent civil service, and by that of large railroad and com- 
mercial corporations in our own country. (Annual Report of the Secretary of the 
Interior, 1911, p. 17.) 

In his annual report for 1911 the Secretary of Commerce and Labor 
points with emphasis to the need of a suitable provision for the retire- 
ment of the aged employees. He said: 

Superannuation in the civil service and the proposed retirement of employees who 
have passed their age of greatest usefulness have attracted much attention. Consider- 
able discussion of the subject has appeared in the public press, and many Government 
officials in reporting on conditions affecting the personnel of their respective depart- 
ments or offices have laid more or less stress on the evils of superannuation in the 
service and the necessity of providing, as has been done by a number of countries and 
private business concerns, some equitable scheme of retirement of those who are no 



12 EEPOE.T TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

longer able to render a fair degree of service, but who would be left without adequate 
means of support if dismissed . Many difficulties, of course, may be expected to attend 
the passage of any law looking to the retirement on pay of superannuated employees in 
the civil service, whether such retirement is accompanied by annuities paid outright 
by the Government or whether it is made possible by contribution in whole or in part 
by the employees themselves. 

Incomplete reports recently received from the bureaus show that there are 72 
employees of this department who ai-e more or less superannuated; that the aggregate 
of their salaries is $73,385; and that their average age is 70 year-s. Perhaps a greater 
amount of superannuation and consequent loss to the Government may be fouiid in the 
older departments and offices. As this department last year reported its opinion on 
the subject of superannuation, it is unnecessary to again point out the advantage and 
economy that would result from the retirement, which practically eA^erybody admits 
should be on an adequate annuity, of the civil employees of the Government who have 
become inefficient through advancing age. (Annual Report of the Secretary of 
Commerce and Labor, 1911, p. 33.) 

The following is a partial list of references to reports and state- 
ments of officers of the Government calling attention to the need of a 
means of retiring the superannuated employees on proper allowances: 

Annual messages to Congress of William Howard Taft, President of the United 
States, 1909, 1910, 1911. 

Annual reports of Franklin MacVeagh, Secretary of the Treasury, 1909, 1910, 1911. 

Annual reports of Ethan A. Hitchcock, Secretary of the Interior, 1904, 1905. 

Annual report of James P. Garfield, Secretary of the Interior, 1908. 

Annual report of Richard A. Ballinger, Secretary of the Interior, 1909, 1910. 

Annual report of Walter L. Fisher, Secretary of the Interior, 1911. 

Annual report of Oscar S. Straus, Secretary of Commerce and Labor, 1908. 

Annual reports of Charles Nagel, Secretary of Commerce and Labor, 1910, 1911. 

Annual reports of Frank H. Hitchcock, Postmaster General, 1909, 1910, 1911. 

Annual report of Joseph Stewart, Second Assistant Postmaster General, 1909. 

Annual reports of Civil Service Commission, tenth, eleventh, nineteenth, twentieth, 
twenty -second, twenty-fifth, and others. 

Report of Committee on Department Methods (Keep Commission), 1907. 

Annual reports of Merritt 0. Chance, Auditor for the Post Office Department, 
1909, 1910. 

Hearings before the House Committee on Reform in the Civil Service, 1896, 1904, 
1908, 1912. 

Statement of E. F. Ware, Commissioner of Pensions, February 9, 1904. 

Statement of Gen. F. C. Ainsworth, Chief of the Record and Pensions Office, War 
Department, February 12, 1904. 

Statement of Frederick I. Allen, Commissioner of Patents, February 26, 1904. 

Statement of William H. Moody, Secretary of the Navy, March 5, 1904. 

It is apparent from the foregoing that the executive officers of the 
Government are agreed in thinking that the highest economy and 
efficiency are not possible in the administration of the public offices 
untn legislation is enacted for the retirement of superannuated 
employees. Most of them hesitate to indicate preference for any 
particular plan of retirement, feeling, apparently, that it is a matter 
to be worked out by experts. 



eeport to the president on retirement allowances. 13 
Straight-Pension Plans versus Contributory Plans. 

Tlie Commission on Economy and Efficiency has given consideration 
to the various plans that have been proposed for the retirement of 
superannuated employees, and finds that they may be divided into 
two groups: 

First, noncontributory plans — commonly referred to as straight 
pensions— proposing the payment of annuities to the superannuated 
employees out of the Federal Treasury; and, 

Second, contributory plans proposing the deduction of stated 
sums — more or less adequate for the purpose in view — from the 
salaries of all employees out of which to pay annuities to retiring 
employees. 

Objections to Straight-Pension Plans. 

The first group of plans — those proposing the payment of annuities 
out of the Federal Treasury- — are found on analysis to be so costly 
and so demoralizing to the service as to make them incompatible with 
any general scheme for economy and efficiency in the public service. 

The cost of a civil pension in every country where it has been tried 
for any considerable length of time is admittedly very great. How- 
ever modest the pension roll in the beginning, it is bound inevitably 
to grow in length and increase in costliness as time goes on. This is 
due to the fact that, under any system which legalizes a draft on the 
Public Treasury, there is a constant tendency to extend its benefits 
to new classes of public servants and to the dependents of deceased 
employees. Under an elective Government, where those who control 
the pension must depend on popular favor for their power, there is 
a constant tendency also to lower the retirement age in order to 
serve some political interest by creating a vacancy. Indeed, a pen- 
sion system may easily become, in the hands of unscrupulous poli- 
ticians, a means of removing political opponents to make places for 
political adherents. This situation may even develop in a country 
where there is a strong sentiment in favor of promotion on merit, for 
a certain number of offices are likely always to be in the appointive 
class and therefore not filled by promotion from below. If the 
incumbents of these offices can be removed without serious oppo- 
sition on their part by retiring them in the prime of life on life pen- 
sions, the ministers of a hostile party are very likely to be strongly 
tempted, as was the case 20 years ago in Canada, to eliminate them 
thus at the expense of the pubhc. This can be accomplished only 
at immense expense to the people, since the cost of a life annuity at 
the younger ages is so much greater than at the older ages. 



14 EEPOKT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 
COSTLINESS OF STRAIGHT-PENSION PLAN. 

A system of pensions paid from the Public Treasury usually starts 
with a simple provision that employees who have served a given 
number of years shall, on reaching a certain age, be retired on an 
allowance. This allowance is customarily on the average salary 
received by the employee during the last three or five years of service. 
In the beginning, the system is attractive to the employee because 
the pension appears to be an addition to his compensation. The 
system once established, the pension is, in the very nature of thmgs, 
regarded by the employee as something to which he has a right. 
Before long the families of employees who die a short time before 
being placed on pension, or soon after retirement, begin to complain 
that the loss of the pension on the death of the employee, who perhaps 
has served the Government long and faithfully, is a hardship to 
which they should not be subjected, and a movement is then set on 
foot to continue the pension to the widows and orphans of such 
employees. This extension of the pension benefits to the families of 
deceased employees increases the expenditures for pensions at an 
enormous rate, and finally the expenditures for pensions are regarded 
by the Government as a part of the expenditures for salaries, being 
spoken of, for instance, in England as "the ineffective vote" in con- 
trast to "the efi^ective vote" or salary list. Salaries are naturally 
fixed thereafter with respect to the value of the prospective pension, 
and persons considering the advisability of entering the public service 
must, m the very nature of things, consider the pension in deciding 
whether they -wdll accept Government employment. With new en- 
trants, the prospective pension is even a greater and more direct con- 
sideration for the service rendered than it is with the old incumbents, 
showing that it comes inevitably to be regarded as part of the com- 
pensation of the office. The result is that the pension tends to keep 
the current pay inadequate. In England, for instance, pensionable 
employees receive less compensation than nonpensionable employees. 
Furthermore, until the benefits are extended to the widows and 
orphans, the pension system works an injustice against the families 
of those who die in the service, since it prevents them from receiving 
the deferred portion of the employees' pay. Viewed in its proper 
light, therefore, the civil pension must be regarded as a pure tontine 
in which all persons lose except those who succeed in three things: 
Living to a certain age, remaining in the service until that age, and 
living beyond that age long enough to get back the value of their 
theoretical contributions. 

EXPERIENCE OP ENGLAND WITH STRAIGHT-PENSION SYSTEM. 

In this connection, the experience of England is especially note- 
worthy and illuminating. A free and universal pension system for 



EEPOET TO THE PRESIDENT OjST EETIEEMENT ALLOWANCES. 15 

the benefit of civil servants was established in 1859. The system was 
popular at first, but soon came to be regarded with dislike by the 
civil servants. They ceased to consider it as a pure gratuity and 
came to think of it as a benefit paid for by themselves out of reduc- 
tions in salary, since nonpensionable employees were shown to be 
better paid than pensionable. Since statistics showed also that not 
more than one out of seven entrants into the service remained to 
pensionable age, they saw that their pensions were subject to large 
chances of forfeiture by death or resignation and that their families 
were then worse off than would have been the case had there been 
no pension system. Approximately 70,000 of the 100,000 individ- 
uals in the service in 1902 organized themselves into a committee 
called the deferred-pay committee, in order to agitate for a change 
in the pension system. Their claim that pensions were deferred 
pay was sustained by the royal commission appointed to inquire into 
the matter, and the employees then demanded that, on separation 
from the service, the value of part of their theoretical contributions, 
should, in justice to their families, be returned to them either in the 
form of insurance or in cash. The pension system was accordingly 
modified as follows : The pensions have been reduced from one-sixtieth 
to one-eightieth of salary for each year of service, but in addition to his 
pension the employee is given a cash sum equal to one-thirtieth of 
his salary for each year of service, with a maximum of a year and a 
half's pay, and the families of those who die after five years of service 
receive a lump sum equal to one year's salary. 

England's experience in granting pensions to its civil employees 
is fully discussed in a recent report entitled ''Civil Service Retire- 
ment in England and New Zealand," published as Senate Docu- 
ment No. 290, Sixty-first Congress, second session. The conclusions 
reached in that report are as follows : 

The important point to note is that the commission conceded that something was 
deducted from the employee's pay for the purpose of pensioning him at the end of his 
period of service. The English pension is therefore not a free and absolute system 
of gratuities at all, but a system of theoretical contributions from the employees' 
salaries, more or less adequate to pay the benefits given. Whatever it may have been 
in the beginning, that is what it has become through the policy — a policy sure to 
develop under a system of gratuities, human nature being what it is — of taking the 
pension into consideration in fixing salaries. * * * 

The question whether the present improved system is absolutely equitable as be- 
tween individuals is difficult of satisfactory answer. It has been shown that it is more 
equitable than the old system; but it can not be shown whether the amounts received 
by the employee in the form of pension, insurance, and cash-surrender values corre- 
spond with the amounts contributed by him, since it has not; been ascertained what 
percentage of salary is withheld as a contribution. The Courtney commission main- 
tained that the theoretically contributed sum is no more, in the aggregate, than the 
amount required for pensions, but this does not prove that the sum contributed by any 
individual may not be more or less than what he should equitably contribute. A 
deduction of a given percentage of salary may be entirely adequate to furnish given 



16 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

benefits for a young man, while a deduction of the same percentage of salary will be 
quite inadequate to provide the same benefits for an old man. The failure of the 
Coin-tney commission to gratify the request of the employees for a full investigation 
into the subject so that the amounts actually withheld might be definitely determined 
makes any redistribution of benefits merely a guess rather than an exact calculation. 
In the absence of the necessary data it is therefore impossible to answer the question: 
Is the present system absolutely equitable as between individuals? 

While it is to be assumed that the calculations made by the actuaries are unimpeach- 
able, it IS to be noted that those calculations were limited in scope and undertaken 
merely to ascertain what benefits could be given by reducing the pension one-quarter. 
The problem of the actuaries was to distribute equitably a definite sum. They were 
not asked to go further back and devise a contributory scheme that would be just as 
between the state and the individual or equitable as between different classes of 
individuals. The amended system is held to be merely a scheme of redistribution, 
but it should not be forgotten that only one-quarter of the amount to be distributed 
has been subject to actuarial calculation. Whether the other three-quarters have been 
equitably distributed can not be stated. 

One thing, however, can be definitely stated regarding the present system in com- 
parison with a system where the contributions are actually instead of only theoreti- 
cally paid, and where they are funded and invested at interest. It is less economical. 
Under the existing system, the necessary sum is appropriated each year out of the 
Treasury for the payment of pensions. This sum amounts to from 16 to 20 per cent, in 
the various departments, of the sums paid for salaries. Under a contributory system, 
the necessary sum would be accumulated gradually from many contributions invested 
at interest. By reason of the fact that with the help of compound interest at the rate of 
3 per cent per annum, the sum of a given contribution per annum will double itself in 
the course of a service of 42 years, and at 3J per cent in 36 years, and at 4 per cent in 
31 years, it follows that the total contributions of an employee who serves 40 years 
need be less than half the amount required by direct appropriation from the Treasury 
to give the same pension. The question naturally suggests itself then: Why would it 
not be a wiser distribution of funds, if the British Government in appropriating a sum 
for the maintenance of civil establishments (including an amount for salaries and 
another amount for pensions) should increase the salaries by the amount of the sum 
spent for pensions, but require employees to pay out of their salaries a contribution 
sufficient to meet the cost of pensions? The net result of thus preferring a scheme of 
actual contributions to one of theoretical contributions would be a general increase in 
salaries without increasing the appropriations for either salaries or pensions, thus 
effecting a saving of money to the employees that, under present conditions, is lost. 
(See Civil Service Retirement in Great Britain and New Zealand, S. Doc. No. 290, 
61st Cong., 2d sess., pp. 183-185.) 

In view of this experience, the commission can not recommend any 
system of retirement allowances to be granted as a reward for services 
inadequately paid for at the time the service is rendered, for it believes 
that the civil employees should receive proper and adequate compen- 
sation for their ser\dces at the time the services are rendered. 

DEMORALIZING EFFECT OF STRAIGHT-PENSION SYSTEM ON GOVERN- 
MENT SERVICE. 

Besides burdening the Government with an enormous expense for 
personal services, which, in the nature of the contract, can not be 
distributed among the employees in proportion to the value of the 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 17 

services rendered, a straight pension is objectionable because it pro- 
motes inefficiency. The argument is advanced by those who favor 
the straight pension that the pension should be regarded not as part 
payment for services rendered but as a reward for continuity of 
service. This is in fact a distmction without a difference, since a 
reward must, in the nature of things, be a compensation for some 
service rendered. Whatever the theory advanced, the Government 
is unable in practice to prevent the employee from taking the value 
of the pension into consideration, whether his service be of long or 
short duration. The promise of the reward is considered by the 
employee as a part of his contract of employment. As soon as the 
Government establishes this system of rewards for continuity of 
service, it must immediately devise ways and means of honorably 
terminating the contract with employees whom it is desirable to 
remove. This means that it is necessary to establish a scale of sur- 
render values which must be given employees dismissed from the 
service to compensate them for the loss of the pension which they 
have partly earned. This agam results in an enormous increase in 
the expense of running the Government offices, but there is no escape 
for the Government that has once adopted a straight pension unless 
it abandons its standard of efficiency. The two horns of the dilemma 
which it thus creates for itself are either retention in office of all the 
inefficients who are under the age of retirement or the increase of the 
pension charge by the amount paid to all those removed before pen- 
sionable age. There is no escape through the contention that the 
pension is to be awarded only in case of faithful or efficient service, 
smce whether the service rendered has been of a quality that would 
entitle the employee to a pension is always debatable. Certainly 
without a system of ''gratuities" or ''compensation for loss of office" 
in addition to the pension system the dismissal of the inefficient 
becomes difficult, if not almost impossible, smce it is hard for the 
superior officer to cause his subordinate not only loss of position, 
especially if he is without resources and has a family dependent on 
him, but also loss of the pension which he has partly earned and 
which he counts as an asset of office as much as he does his salary. 
The result of this reluctance in such cases must be a breaking down 
of the moral tone of the whole service. 

Nor is this the whole catalogue of evils sure to spring from adopt- 
ing the theory that a pension is a reward for continuity of service. 
Not only is the Government forced to protect itself against the reten- 
tion of the incompetent by granting them a compensation for loss of 
office, but it is logically obliged then to grant a gratuity to those who 
voluntarily retire from the service before reaching pensionable age. 
To do otherwise would be to put a premium on inefficiency. 



18 eepoet to the president on eetirement allowances. 

Straight-Pension System Would Raise More Questions Than 

IT Would Settle. 

The commission desires, therefore, to em.phasize the point that, 
in considering the adoption of a system of pensions for Federal em- 
ployees, the problem is not merely the cost and advisability of pen- 
sioning the comparatively few employees now eligible for retirement, 
but embraces a great deal more than that. It includes the question 
of extending pension benefits to widows and orphans and giving the 
commuted values of pensions or gratuities to all who leave the service 
before pensionable age. In the opinion of the commission the estab- 
lishment of a civil pension payable out of the Federal Treasury would 
thus raise more questions than it would settle. 

pension plans suitable for private corporations not appro- 
priate FOR government. 

It is true that in recent years many of our railroads and other large 
business institutions have established pension systems under which 
superannuated employees are retired on allowances provided by the 
institution, without contribution by the employees, and that the 
employers generally declare that such provision for the employees is 
good business policy, since it results in creating among their subor- 
dinates a sense of loyalty and an interest in the business, as well as a 
feeling of permanency in their employment, which are of benefit to 
the employer as well as to the employee. It would seem, at first 
thought, that a policy that had been found advantageous by our 
great commercial institutions in dealing with their employees would 
be equally advantageous to the Government. A more careful com- 
parison of the commercial and the Government services discloses the 
fact, however, that conditions of employment in the two services 
are wholly different, and that what has proved beneficial to one 
would prove equally harmful to the other. This is clearly brought 
out in the report entitled, ''Savings and Annuity Plan Proposed for 
Retirement of Superannuated Civil-Service Employees" (S. Doc. 
No. 745, 61st Cong., 3d sess., pp. 56, 57, 58), and since the commission 
concurs in the conclusions there set forth, the argument is given 
below: 

The question may be raised why a straight pension should be demoralizing to the Gov- 
ernment service, when the testimony of private employers is to the effect that they have 
found it helpful in the maintenance of discipline. The answer is that conditions of em- 
ployment in the Government service are diametrically different from those in private 
service. A straight pension is a powerful aid to the ordinary employer in holding 
his men and in keeping up their standard of efficiency, as brought out by the Hon. 
Frank A. Vanderlip, president of the National City Bank of New York, in an article 
on "Insurance for workingmen," published in the North American Review in Decem- 
ber, 1905. Said he: 



EEPOET TO THE PRESIDENT ON EETIREMENT ALLOWANCES. 19 

"When employees realize that unsatisfactory conduct may at any time lose them 
not only their present position, a loss which in such a labor market as ours might be 
easily made good, but that it entails further the loss of a very valuable asset — the 
employee's right to a pension — the incentive to good conduct is greatly increased. It 
operates especially as an incentive to hold men between the ages of 40 and 50, when 
they have acquired the experience and skill which makes them especially valuable, 
and prevents their being tempted away by slightly increased wages for a temporary 
period." 

This statement is entirely correct when applied to business institutions. It is not 
wholly correct when applied to the Government service. A straight pension is a 
powerful aid to the Government as well as to a corporation in holding its employees, 
but there is this radical difference in its operation under the two conditions: In the 
case of the Government it operates to hold the poor employees rather than the good 
and to break down rather than to keep up the standard of efficiency. This is ex- 
plained by two fundamental differences in the conditions of labor when a private 
corporation is the employer and when the United States Government acts in that 
capacity. These are, first, the fact that there is seldom any relationship between the 
value and the cost of a Government output such as there always is in the case of a 
commodity produced by a private corporation, and, second, the fact that the man 
at the head of a Government office' or shop has much less authority over his sub- 
ordinates than has an executive officer similarly placed in a private business. 

Business enterprises are conducted for the purpose of paying dividends, and as 
inefficiency on the part of an employee has a direct bearing on the dividends it will 
not be tolerated. On the other hand, the great majority of Government employees 
are not engaged in the production of commercial articles which must be sold at a profit 
in competition, and the loss to the Government through inefficiency is not so apparent 
or so easily measured. It may, for instance, cost the Government a hundred thousand 
dollars to get out a highly scientific or technical report which is, economically, either 
at the time or ultimately in the course of years, well worth that sum of money to the 
people of the United States, but which, commercially, would not bring in a thousand 
dollars if placed on the market for sale. Since the inefficiency of an employee 
engaged in work that has such an uncertain market value is not so easily detected or 
so likely to be regarded as serious as would be the case in private business, he is 
usually permitted to remain in the Government service, whereas he would be very 
promptly dismissed by a private house. 

The fact that the administrative officials at the head of Government offices have 
not entire control over the selection of their subordinates makes it impossible for those 
officials to be held as strictly responsible for residts as is the case in private business. 
What is everybody's business is nobody's business. Since also the position of the 
executive head of the office is not greatly endangered by the incompetency of his 
assistants, especially where the effect of the incompetency can not be readily meas- 
ured by reduction in actual output of some kind, it follows that he can afford to be 
lenient with them. He is especially inclined to be so if the employee's inefficiency 
is known to be the result of old age or any other cause which makes an appeal to the 
natural feelings of humanity. In case the inefficient employee is working imder a 
pension system whereby he is entitled on reaching a certain age to retire on a com- 
petence, the head of the office will be all the more reluctant to dismiss him before he 
reaches that age. But a pension system has exactly the opposite effect where the 
private corporation is the employer. In that case the administrative official at the 
head of an office is held directly responsible either to the owner of the business or a 
board of directors for the inefficiency of his subordinates. The output can usually be 
measured in terms of tons or dollars, and if it falls below the required amount the posi- 
tion of the man in charge is jeopardized. In self-defense, therefore, he is obliged to 
hold every subordinate up to the highest standard of efficiency and to stifle any feeling 



20 REPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

of humanity or sympathy which might otherwise tempt him to show leniency. That 
being his state of mind, a pension system becomes a powerful aid to him in his effort 
to maintain discipline and secure obedience and industry, as explained by Mr. Van- 
derlip in the article quoted above. Undoubtedly, the reason why railroads and 
other corporations are disposed to favor the straight pension with entire control of the 
pension fund, rather than any contributory plan with a fund in any way controlled 
by the employees, is that it helps them to approximate the establishment of military 
discipline among their subordinates. They look on a pension as a useful kind of 
strike insurance. For fear of forfeiting his pension, the employee, like the soldier, 
will sacrifice much of his personal liberty, including his right to strike for better wages 
or shorter hours. 

It would seem proper to point out also the fact that a scale of bene- 
fits that would be satisfactory for employees of a corporation would 
be wholly inadequate for employees of the Government. 

Sound Contributory Plan Solution of Problem of Super- 
annuation IN Government Service. 

The noncontributory form of pension being burdensome to the 
taxpayer and detrimental to the service, the commission believes 
that the only way to solve the problem of superannuation in the 
service is to establish a sound contributory plan of retirement. Of 
the various contributory plans proposed for the retirement of Govern- 
ment employees in the years when the subject was first agitated, 
some were unscientific and unsound, and all were inequitable as 
between different classes of employees. Most of these early plans 
contemplated the creation of a common fund made up of deductions 
from the salaries of employees of different salaries and ages on a scale 
that would be sufficient to pay the annuities to all employees without 
any aid from the Government in the payment of annuities to those 
who were too old to provide their own annuities. This meant that 
the young employees would be taxed sums not only sufficient to 
provide their own annuities, but sums that would be sufficient to pay 
the annuities to the aged employees as well. This method of provid- 
ing for those who were too old to create their own annuities by 
monthly deductions from their salaries was naturally opposed by the 
younger employees, and very properly so. 

Sound Contributory Plans Proposed in Recent Years. 

Since 1908, however, a number of bills have been introduced in 
Congress which are sound in principle and equitable as between 
individuals. Briefly, these bills provide that each employee shall 
receive an annuity based on his salary and length of service. They 
are all based on two fundamental principles, that of graduating 
deductions from salary according to the age of entrance into the 
service and that of keeping separate present and future liabilities. 



REPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 21 

The annuities corresponding to service rendered prior to the adoption 
of the plan are to be paid out of the Federal Treasury, and all annui- 
ties corresponding to services rendered after the adoption of the plan 
are to be provided by monthly deductions from the salaries of the 
employees, improved at compound interest. 

CALCULATIONS AS TO THE COST OF ESTABLISHING THESE PLANS. 

This proposal that annuities for services rendered prior to the 
adoption of the plan be paid out of the Federal Treasury naturally 
raised the question, For how long a period would the Government 
be required to make appropriations for that purpose and how much 
would have to be appropriated each year? Several elaborate cal- 
culations have been made to ascertain what the cost would be under 
various bills that have been introduced into Congress embodying 
this principle. The results of these calculations are shown on page 
159 and following of the report entitled "Savings and Annuity Plan 
Proposed for Retirement of Superannuated Civil Service Employees." 
(S. Doc. 745, 61st Cong., 3d sess.) 

The first calculation was made for the Committee on Department 
Methods (Keep Commission), and was based on table 67 of Census 
Bulletin No. 12, entitled "The Executive Civil Service of the United 
States," covering the classified employees as of June 30, 1903. The 
total number of employees included in that calculation was 103,030, 
and the maximum cost of paying to the survivors annuities for 
services rendered prior to the adoption of the plan equal to 1.5 per 
cent of aggregate salary was found to amount to $66,985,778 in the 
course of 67 years, as shown by the table following. 



22 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



Table I. — Showing maximum amount of annual appropriation by the Federal Gov- 
ernment necessary to provide a monthly annuity to each person in the classified civil 
service June SO, 1903, upon attaining the retirement age of 70 years {the amount of 
annuity to he 1.5 per cent of the employee's salary June 30, 1903, for each year of service- 
completed prior to that date). 

[Based on census of employees as of June 30, 1903.] 



Year. 



1907. 
1908. 
1909. 
1910. 
1911. 
1912. 
1913. 
1914. 
1915. 
1916. 
1917. 
1918, 
1919, 
1920. 
1921 
1922 
1923 
1924 
1925, 
1926 
1927 
1928 
1929 
1930 



Amount of 
appropria- 
tion. 



$725,110 
811,840 
908,188 
1, 025, 293 
1,157,181 
1,258,725 
1,370,710 
1,466,424 
1,526,551 
1,570,768 
1,579,132 
1,564,974 
1,550,742 
1,534,636 
1,531,851 
1,512,159 
1,554,679 
1,546,866 
1,550,718 
1,555,588 
1,571,682 
1,589,167 
1,617,302 
1,663,981 



Year. 



1931. 
1932. 
1933. 
1934. 
1935. 
1936. 
1937. 
1938. 
1939. 
1940. 
1941, 
1942, 
1943, 
1944 
1945, 
1946 
1947 
1948 
1949 
1950 
1951 
1952 
1953 
1954 



Amount of 
appropria- 
tion. 



$1,699,374 

1,713,035 

1,724,385 

1,734,603 

1,736,047 

1,744,512 

1,746,561 

1,736,974 

1,718,542 

1,684,723 

1,635,423 

1,568,188 

1,492,830 

1,406,199 

1,314,000 

1,211,837 

1,103,182 

990,583 

889, 324 

772, 735 

669,126 

572,770 

484,069 

403, 305 



Year. 



1955 

1956 

1957 

1958 

1959 

1960 

1961 

1962 

1963 

1964 

1965 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 

1974 

Total 



Amount of 

appropria* 

tion. 



S331,667 

269,380 

216,046 

170, 947 

133, 347 

102,450 

77,434 

57,499 

41,884 

29,877 

20, 829 

14,152 

9,354 

5,971 

3,697 

2,199 

1,251 

679 

346 

163 



66,985,778 



The second calculation was made by the Bureau of the Census, and 
was based on cards used in the compilation of Census Bulletin No. 94, 
entitled '^ Statistics of Employees of the Executive Civil Service of 
the United States," covering the classified employees as of June 30, 
1907. The total number of employees included in this inquiry was 
170,228, and the maximum cost of paying annuities for services 
rendered prior to the adoption of the plan on the same basis of 1.5 
per cent of the employee's aggregate salary was found to amount to 
$130,581,273, in the course of 78 years, as shown by the following 
table : 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



23 



Table II. — Showing maximum amount of annual appropriation by the Federal Gov- 
ernment necessary to provide a quarterly annuity to each person in the classified civil 
service June SO, 1907, upon attaining retirement age {the amount of annuity to be 1.5 
per cent of the employee's salary for each year of service completed prior to that date). 

[Based on census of employees as of June 30, 1907.] 



Years after the introduction of the plan. 



Aggregate annuities payable quarterly. 



Total. 


To general 
employees 
retiring at 
age of 70. 


To letter 
carriers and 
rural car- 
riers retir- 
ing at age 
of 65. 


To railway 

postal 
clerks retir- 
ing at age 
of 60. 


$1, 121, 795 


$706,290 


$166, 449 


$259,056 


1,261,819 


803, 660 


187, 943 


270, 216 


1,390,485 


892,056 


217,500 


280,929 


1,556,632 


1,020,092 


246,545 


289,995 


1, 705, 135 


1,123,599 


273,947 


307,589 


1,861,499 


1,249,851 


294,011 


317, 637 


2,003,086 


1,358,948 


312, 044 


332,094 


2,129,118 


1,449,713 


326, 639 


352, 766 


2,252,506 


1,532,090 


347, 075 


373,341 


2,317,860 


1,553,682 


371, 103 


393,075 


2,392,028 


1,577,259 


394, 799 


419,970 


2,441,271 


1,570,667 


424, 154 


446, 450 


2,491,484 


1,556,937 


459, 273 


475,274 


2,559,337 


1,545,965 


503, 673 


509,699 


2,621,035 


1,537,544 


542,928 


540,563 


2,679,979 


1,511,480 


597,995 


570,504 


2,726,937 


1,485,348 


648, 186 


593,403 


2,791,401 


1,465,143 


708, 207 


618,051 


2,871,945 


1,456,133 


776,330 


639,482 


2,940,921 


1,438,410 


839, 736 


662,775 


3,047,310 


1,465,515 


892, 680 


689, 115 


3,138,272 


1,482,258 


940,521 


715, 493 


3,235,543 


1,508,111 


989,799 


737, 633 


3,323,097 


1,530,210 


1,036,572 


756, 315 


3,390,712 


1,549,001 


1,072,848 


768,863 


3,442,268 


1,548,476 


1, 122, 372 


771,420 


3,469,245 


1,544,175 


1, 154, 148 


770, 922 


3,481,754 


1,538,943 


1,178,888 


763, 923 


3,495,463 


1,543,358 


1,197,461 


754,644 


3,483,861 


1,546,149 


1,197,318 


740,394 


3,454,704 


1,547,352 


1,188,837 


718,515 


3,419,266 


1,552,364 


1,172,208 


694,694 


3,373,275 


1,561,293 


1,146,978 


665,004 


3,314,099 


1,564,071 


1,114,770 


635, 258 


3,232,814 


1,551,927 


1,079,298 


601,589 


3,135,067 


1, 529, 148 


1, 040, 360 


565,559 


3,021,176 


1,498,314 


994,292 


528,570 


2,901,416 


1,463,090 


946,731 


491,595 


2,767,554 


1,421,790 


892,842 


452, 922 


2, 618, 430 


1,367,819 


836,651 


413, 960 


2,466,544 


1,313,333 


778, 416 


374,795 


2,302,036 


1,245,255 


720,110 


336,671 


2,132,720 


1,169,589 


662,490 


300,641 


1,964,236 


1,094,285 


602,976 


266,975 


1,792,997 


1,014,722 


542, 571 


235,704 


1,618,516 
1, 449, 172 


927, 968 
842, 132 


483, 713 
426,686 


206,835 
180, 354 



Less than 1 year 

1 year 

2 years 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years.... 



24 KEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



Table II. — Showing maximum amount of annual appropriation by the Federal Gov- 
ernment necessary to provide a quarterly annuity to each person in the classified civil 
service June SO, 1907, etc. — Continued. 



Years after the introduction of the plan. 



Aggregate annuities payable quarterly. 



Total. 



To general 
employees 
retiring at 
age of 70. 



To letter 
carriers and 
rural car- 
riers retir- 
ing at age 
of 65. 



To railway 

postal 
clerks retir- 
ing at age 
of 60. 



47 years 

48 years 

49 years 

50 years 

51 years 

52 years 

63 years 

54 years 

55 years 

56 years 

57 years 

58 years 

59 years 

60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 

C8 years 

69 years 

70 years 

71 years 

72 years 

73 years 

74 years 

75 years 

76 years 

77 years 

78 years 

Total 



$1,283,841 

1,125,133 

977, 446 

840, 125 

714,958 

602, 139 

502, 310 

415, 013 

339,457 

274,814 

220,096 

174,269 

136,301 

105, 195 

80,036 

59,950 

44,149 

31,914 

22,601 

15,645 

10, 562 

6,937 

4,413 

2,709 

1,600 

902 

483 

248 

124 

54 

23 

6 



$754,800 

667,842 

584,828 

505,410 

431,711 

364,316 

304,260 

251,508 

205,707 

166,464 

133,232 

105,399 

82,353 

63,495 

48,258 

36, 114 

26, 576 

19,206 

13, 608 

9,432 

6,386 

4,212 

2,700 

1,677 

1,007 

581 

320 

171 

89 

42 

18 

6 



$372,822 

322,910 

277,866 

237,479 

201,518 

169, 715 

141, 797 

117,483 

96,476 

78,473 

63, 182 

50, 321 

39,605 

30,765 

23,668 

17,777 

13, 181 

9,588 

6,830 

4,752 

3,219 

2,117 

1,344 

819 

477 

264 

137 

66 

30 

12 

5 



$156,219 

134,381 

114,752, 

97,236 

81,729 

68,108 

56,253 

46,022 

37, 274 

29,877 

23,682 

18, 549 

14,343 

10,935 

8, 210 

6,059 

4,392 

3,120 

2,163 

1,461 

957 

608 

369 

213 

116 

57 

26 

11 

5 



130,581,273 



9,547,243 



36,325,671 



24,708,359 



The following table, taken from the report above referred to (p. 
174), shows the total and comparative cost to the Government of 
establishing a plan of retirement for employees under the terms of the 
Perkins bill (S. 1944, 61st Cong., 1st sess.) and the Gillett bill (H. R. 
22013, 61st Cong., 2d sess.). The annuities under the Gillett bill 
(H. R. 22013) are also 1.5 per cent of salary for each year of service, 
but the amount which the Government will contribute toward any one 
employee's annuity is limited to the difference between the amount 
which the employee's own savings will purchase and $600 a year. 
This table contemplates the retirement of railway , postal clerks at 
age 60, of letter carriers at age 65, and of all other employees at age 70. 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 25 

Table III. — Showing total and comparative cost to the Government of establishing plan 
for retiring employees under terms of Perkins hill (S. 1944) and Gillett bill {H. R. 
22013). 



Period. 



All employees. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for all em- 
ployees over 
cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for all em- 
ployees. 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for all em- 
ployees. 



General employees. 



Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for all em- 
ployees. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for general 
employees 
over cost of 
establishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



Cost of es- 
tablishing 

Perkins bill 

(S. 1944) 
for general 

employees. 



$43,525,993 $87,055,280 



$130,581,273 



$37,366,001 



$32,181,242 



Immediately. . . 

1 year 

2 years 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42245— H 



143^251 
169, 714 
188,507 
220,200 
249,315 
287,703 
327,280 
355, 677 
389,989 
407,830 
429, 763 
437,813 
445,360 
460,260 
485,707 
500,456 
517,114 
533,993 
564,221 
588,925 
640, 838 
686,504 
742,475 
804,487 
864,296 
908, 608 
956,207 

1,005,355 

1,060,186 

1,125,442 

1,180,277 

1,227,543 

1,304,964 

1,365,805 

1,408,406 

1,431,587 

1,440,830 

1,440,176 

1,425,883 

1,394,017 

1,356,629 

1,295,772 

Doc. 732, 62 



978,544 
1,092,105 
1,201,978 
1,336,432 
1,455,820 
1,573,796 
1,675,806 
1,773,441 
1,862,517 
1,910,030 
1,962,265 
2,003,458 
2,046,124 
2,099,077 
2,135,328 
2,179,523 
2,209,823 
2,257,408 
2,307,724 
2,351,996 
2,406,472 
2,451,768 
2,493,068 
2,518,610 
2,526,216 
2,533,760 
2, 513, 038 
2,476,399 
2,435,277 
2,358,419 
2,274,427 
2, 191, 723 
2,068,311 
1,948,294 
1,824,408 
1,703,480 
1,580,346 
1,461,240 
1,341,671 
1,224,413 
1,109,915 
1,006,264 

-2 3 



1,121,795 
1,261,819 
1,390,485 
1,556,632 
1,705,135 
1,861,499 
2,003,086 
2,129,118 
2,252,506 
2,317,860 
2,392,028 
2,441,271 
2,491,484 
2,559,337 
2,621,035 
2,679,979 
2,726,937 
2,791,401 
2,871,945 
2,940,921 
3,047,310 
3,138,272 
3,235,543 
3,323,097 
3,390,712 
3,442,268 
3,469,245 
3,481,754 
3,495,463 
3,483,861 
3,454,704 
3,419,266 
3,373,275 
3,314,099 
3,232,814 
3,135,067 
3,021,176 
2,901,416 
2,767,554 
2,618,430 
2,466,544 
2,302,036 



125,977 

152,962 

171,345 

202,051 

228,645 

266,036 

303,523 

329,671 

360,856 

375,951 

392, 179 

395,125 

397,661 

405,974 

421,344 

426,420 

434, 885 

442,684 

461,991 

476, 140 

514,059 

547, 619 

589, 807 

638,533 

683, 759 

717,688 

756,450 

799,975 

849,367 

907,003 

961,377 

1,019,701 

1,091,157 

1,156,078 

1,203,244 

1,233,396 

1,250,015 

1,256,497 

1,251,669 

1,229,301 

1,201,914 

1, 156, 808 



580,313 

650,698 

720, 711 

818,041 

894,954 

983,815 

1,055,425 

1,120,042 

1,171,234 

1,177,731 

1,185,080 

1,175,542 

1,159,276 

1,139,991 

1,116,200 

1,085,060 

1,050,463 

1,022,459 

994, 142 

962,270 

951,456 

934, 639 

918,304 

891, 677 

865,242 

830, 788 

787, 725 

738,968 

693,991 

639, 146 

585,975 

532, 663 

470, 136 

407,993 

348,683 

295, 752 

248, 299 

206,593 

170, 121 

138,518 

111,419 

88,447 



9,547,243 



706,290 
803,660 
892,056 
1,020,092 
1,123,599 
1,249,851 
1,358,948 
1,449,713 
1,532,090 
1,553,682 
1,577,259 
1,570,667 
1,556,937 
1,545,965 
1,537,544 
1,511,480 
1,485,348 
1,465,143 
1,456,133 
1,438,410 
1,465,515 
1,482,258 
1,508,111 
1,530/ 210 
1,549,001 
1,548,476 
1,544,175 
1,538,943 
1,543,358 
1,546,149 
1,547,352 
1,552,364 
1,561,293 
1,564,071 
1,551,927 
1,529,148 
1,498,314 
1,463,090 
1,421,790 
1,367,819 
1,313,333 
1,245,255 



26 EEPOKT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

Table III. — Showing total and comparative cost to the Government of establishing plan 
for retiring employees under terms of Perkins bill (S. 1944) and Gillett bill {H. R. 
22013)— Continned. 



Period. 



i2 years.. 

43 years.. 

44 years.. 

45 years.. 

46 years.. 

47 years . . 

48 years.. 

49 years.. 

50 years.. 

51 years., 

52 years., 

53 years. 
64 years. 

55 years. 

56 years. 

57 years. 

58 years. 

59 years. 

60 years. 

61 years. 

62 years. 

63 years. 

64 years. 

65 years . 

66 years. 

67 years . 

68 years . 

69 years. 

70 years . 

71 years . 

72 years. 

73 years. 

74 years. 

75 years. 

76 years. 

77 years. 

78 years. 



All employees. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for all em- 
ployees over 
cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for all em- 
ployees. 



,230,176 

,161,0.36 

,087,321 

,004,177 

918,052 

827, 277 

735,221 

646,230 

560, 782 

481,136 

407,756 

342, 084 

284,093 

232,472 

189,890 

152, 794 

121,568 

95,576 

74, 186 

56, 796 

42,844 

31,810 

23, 210 

16,613 

11,648 

7,978 

6,333 

3,461 

2,176 

1,320 

768 

424 

225 

116 

51 

23 

6 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for all em- 
ployees. 



Cost of es- 
tablishing 
Perkins bill 

(S. 1944) 
for all em- 
ployees. 



$902,544 

803,200 

705, 676 

614,339 

531, 120 

456, 564 

390, 112 

331,216 

279,343 

233,822 

194,383 

160, 226 

130,920 

106, 985 

84, 924 

67, 302 

52, 701 

40, 725 

31,009 

23, 240 

17, 106 

12,339 

8,704 

5,988 

3,997 

2,684 

1,604 

962 

533 

280 

134 

69 

23 

9 

3 



12, 132, 720 

1,964,236 

1,792,997 

1,618,516 

1,449,172 

1,283,841 

1, 125, 133 

977, 446 

840, 125 

714,958 

602, 139 

502,310 

415,013 

339, 457 

274, 814 

220,096 

174,269 

136,301 

105, 195 

80,030 

59, 950 

44, 149 

31,914 

22,601 

15,645 

10, 562 

6,937 

4,413 

2,709 

1,600 

902 

483 

248 

124 

54 

23 

6 



General employees. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for general 
employees 
over cost of 
estabhshing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



$1,100,377 

1,039,998 

974,326 

897, 925 

820, 240 

739, 200 

657,001 

577, 508 

600, 626 

428, 702 

362,504 

303,226 

250, 955 

205, 432 

166,338 

133, 181 

105,381 

82,348 

63, 493 

48,258 

36,114 

26, 576 

19, 206 

13, 608 

9,432 

6,386 

1,212 

2,700 

1,677 

1,007 

681 

320 

171 

89 

42 

18 

6 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



$69, 212 

54, 287 

40, 396 

30,043 

21,892 

15,600 

10, 841 

7,320 

4,784 

3,009 

1,812 

1,034 

553 

275 

126 

51 

18 

6 

2 



Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for general 
employees. 



$1,169,589 

1,094,285 

1,014,722 

927, 968 

842, 132 

754, 800 

667, 842 

584, 828 

505,410 

431,711 

364,316 

304,260 

251,508 

205, 707 

166,464 

133,232 

105, 399 

82,353 

63, 496 

48,268 

36, 114 

26, 676 

19,206 

13,608 

9,432 

6,386 

4,212 

2,700 

1,677 

1,007 

581 

320 

171 

89 

42 

18 

6 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 27 



Table Ill.—Shotving total and comparative cost to the Government of establishing plan 
for retiring employees under tenns of Perkins hill (S. 1944) and Gillett bill (H. R. 
22013)— Continned. 



Period. 



Mail carriers. 



Excess cost 
of establish- 
ing Perkins 
blll(S. 1944) 

for mail 
carriers over 
cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 
carriers. 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 
carriers. 



Cost of es- 
tabhshing 
Perkins bill 
(S. 1944) 
for mail 
carriers. 



Railway postal clerks. 



Excess cost 

of establish- 
ing Perkins 

bill (S. 1944) 
for railway 

postal clerks 
over cost of 

establishing 
Gillett bill 

(H.R. 22013) 
for railway 

postal clerks. 



Cost of es- 
tablishing 
Gillett bill 

(H.R. 22013) 
for railway 

postal clerks. 



Cost of es- 
tabUshing 

Perkins bill 
(S. 1944) 

lor railway 
postal clerks. 



$1,393,306 



$34, 932, 565 



Immediately 

1 year 

2 years 

3 years 

4 years 

5'years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 



789 
352 
515 
616 

758 

833 

1,070 

1,141 

1,500 

1,914 

2,159 

2, 653 

2,846 

3,157 

3,361 

3, 991 

4,744 

4, 550 

6,028 

7,013 

8,213 

10, 120 

12, 5.59 

15,689 

20, 100 

25,237 

29,099 

32, 859 

36,263 

44, 234 

46, 288 

47, 214 

46,975 

47,062 

47,721 

48,613 

48,674 

50,036 

49, 472 

48, 877 

47,566 

42, 367 

42,717 

42, 981 



155 

187 

216 

245 

273 

293 

310 

325 

345 

369 

392 

421 

456 

500 

539 

594 

643 

703 

770 

832 

884; 

930 

977 

1,020 

1,052 

1,097; 

1,125 

1,146 

1,161 

1,153; 

1,142; 

1,124; 

1,100 

1,067 

1,031 

991 

945 

896 

■ 843 

787, 

730 

677 

619; 

559 



$36, 325, 671 



$4,766,886 



$19,941,473 



156,449 

187, 943 

217, 500 

246,-545 

273,947 

294, Oil 

312,044 

326, 639 

347, 075 

371, 103 

394,799 

424, 154 

459, 273 

503, 673 

542, 928 

597,995 

648, 186 

708, 207 

776,-330 

839, 736 

892, 680 

940,521 

989, 799 

1,0.36,572 

1,072,848 

1,122, .372 

1,154,148 

1,178,888 

1,197,461 

1,197,318 

1,188,837 

1,172,208 

1,146,978 

1,114,770 

1, 079, 298 

1,040,360 

994, 292 

946,731 

892, 842 

836,651 

778, 416 

720, 110 

662, 490 

602,976 



16, 485 

16, 400 

16,647 

17, .533 

19,912 

20, 834 

22, 687 

24, 865 

27, 6.33 

29,965 

35, 425 

40, 035 

44, 853 

51,129 

61,002 

70,045 

77, 485 

86,759 

96, 202 

105,772 

118, 566 

128,765 

140,109 

150,265 

160,6-37 

165,683 

170,658 

172,521 

174, 556 

174,205 

172, 612 

160, 628 

166, 832 

162, 665 

157, 441 

149, 578 

142, 141 

133,643 

124,742 

115, 839 

107, 149 

96,597 

87,082 

78,057 



242, 571 
253, 816 
264, 282 
272, 462 
287, 677 
296, 803 
309, 407 
327, 901 
345,708 
363, 110 
384, .545 
406, 415 
430, 421 
458, 570 
479, -561 
500, 459 
515,918 
5-31,292 
543, 280 
557,003 
570, 549 
586,728 
597, 524 
606,050 
608, 226 
605,737 
600, 264 
591,402 
580, 088 
566, 189 
545, 903 
534,066 
498, 172 
472, 593 
444, 148 
415, 981 
386,429 
357,952 
328,180 
298, 121 
267, 646 
240,074 
213,559 
188, 918 



$24,708,359 



259,056 
270, 216 
280,929 
289, 995 
307, 589 
317,637 
332, 094 
352, 766 
373,341 
393,075 
419, 970 
446, 450 
475, 274 
509, 699 
540,563 
570, 504 
593, 403 
618,051 
639, 482 
662,775 
689, 115 
715, 493 
737,6.33 
756,315 
768, 863 
771,420 

770. 922 

763. 923 
754, 644 
740,394 
718,515 
694,694 
665,004 
635, 258 
601,589 
565, 559 
528, 570 
491,-595 
452, 922 
413, 960 
374, 795 
336, 671 
300, 641 
266, 975 



28 



EEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



Table 111 .—Showing total and comparative cost to the Government of establishing plan 
for retiring employees under terms of Perkins hill (S. 1944) and Gillett hill (H. B. 
22013)— Continued. 



Period. 



44 years. 

45 years. 

46 years . 

47 years . 

48 years . 

49 years . 

50 years . 

51 years. 

52 years . 

53 years . 

54 years . 

55 years . 
50 years. 

57 years . 

58 years. 

59 years . 

60 years. 

61 years . 

62 years . 

63 years . 

64 years . 

65 years. 

66 years . 

67 years . 

68 years . 

69 years . 

70 years . 

71 years . 

72 years. 

73 years . 

74 years . 

75 years. 

76 years . 

77 years . 



Mail carriers. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 

for mail 
carriers over 
cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 
carriers. 



$43, 441 

44, 656 

43, 612 

40, 704 

36,894 

33,277 

29,840 

26, 622 

23, 612 

20, 809 

18,217 

15,838 

13,654 

11,677 

9,895 

8,303 

6,883 

5,641 

4,564 

3,637 

2,847 

2,193 

1,656 

1,218 

875 



261 
161 
92 
48 
23 
9 
5 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 
carriers. 



$499, 130 

439,057 

383, 074 

332, 118 

286,016 

244,589 

207, 639 

174,896 

146, 103 

120, 988 

99,266 

80, 638 

64,819 

51,505 

40,426 

31,302 

23,882 

17, 927 

13,213 

9,544 

0,741 

4,637 

3,096 

2,001 

1,242 

736 

411 

216 

103 

45 

18 

7 

3 



Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for mail 
carriers. 



$542,571 

483, 713 

426, 686 

372,822 

322, 910 

277,866 

237, 479 

201,518 

169, 715 

141, 797 

117,483 

96, 476 

78,473 

63, 182 

50, 321 

39, 605 

30,765 

23,568 

17,777 

13, 181 

9,588 

6,830 

4,752 

3,219 

2,117 

1,344 

819 

477 

264 

137 

66 

30 

12 

5 



Railway postal clerks. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 

for railway 
postal clerks 

over cost of 
estabhshing 

Gillett bill 
(H.R. 22013) 

for railway 
postal clerks. 



$69,554 

61,596 

54, 200 

47, 373 

41,126 

35,445 

30, 310 

25,812 

21,640 

18, 049 

14,921 

11,202 

9,898 

7,936 

6,292 

4,925 

3,810 

2,897 

2,166 

1,597 

1,157 

812 

560 

374 

246 

153 

91 

52 

26 

12 

6 

3 



Cost of es- 
tablishing 
Gillett bill 

(H.R. 22013) 
for railway 

postal clerks. 



$166, 150 

145,239 

126. 154 

108,846 

93,255 

79, 307 

66,920 

55, 917 

46, 468 

38,204 

31,101 

26,072 

19, 979 

15,746 

12,257 

9,418 

7,125 

5,313 

3,893 

2,795 

1,963 

1,351 

901 

583 

362 

216 

122 

64 

31 

14 

5 

2 



Cost of es- 
tabUsliing 

Perkins bill 

(S. 1944) 
for railway 

postal clerks. 



$235, 704 

206,835 

180, 354 

156,219 

134,381 

114,752 

97,236 

81, 729 

68, 108 

56, 253 

46,022 

37,274 

29,877 

23, 682 

18,549 

14, 343 

10,935 

8,210 

6,059 

4,392 

3,120 

2,163 

1,461 

957 

008 

369 

213 

116 

57 

26 

11 

5 



DIFFERENCE IN COST BETWEEN STRAIGHT PENSION AND CONTRIBU- 
TORY PLAN CONFERRING SAME BENEFITS. 

The following table, taken from the report referred to (p. 48), shows 
that the cost of a civil pension conferring the same benefits as the 
Perkins bill (S. 1944) and payable entirely out of the Public Treasury 
would be .$232,773,690 during the next 35 years, as contrasted with 
the cost of the Perkins bill for the same period at $97,553,023. 



REPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 29 



Table IV. — Showing comparative cost to the Government during first 35 years of retiring 
employees on straight pensions and under the Perkins hill (S. 1944). 



Period 



All employees. 



Excess cost 
of retiring all 
employees 
on straight 
pensions 
over cost of 
retiring all 
employees 
mider Per- 
kins bill dur- 
ing first 35 
years. 



Cost of retir- 
ing all em- 
ployees 
under 
Perkins bill 
shown for 
period of 
35 years. 



Cost of retir- 
ing all em- 
ployees on 
straight pen- 
sions confer- 
ring benefits 
of Perkins 
bill during 
first 35 years. 



General employees. 



Excess cost 
of retiring 
general em- 
ployees on 
straight pen- 
sions over 
cost of retir- 
ing general 
employees 
under Per- 
kins bill dur- 
ing first 35 
years. 



Cost of retir- 
ing general 
employees 

under 
Perkins bill 
during . 
first 35 years. 



Cost of retir- 
ing general 
employees 
on straight 

pensions 
conferring 
benefits of 
Perkins bill 

shown 
during first 

35 years. 



Immediately. 

1 year 

2 years 

3 years 

lyears 

g years 

6years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 



$135,220,667 



14,008 

36, 503 

76,513 

127, 822 

196,141 

277, 148 

370, 553 

473,740 

572,679 

707,058 

844,518 

1,013,466 

1,211,119 

1,412,728 

1,641,4.34 

1,875,576 

2,158,712 

2,489,837 

2, 688, 105 

3,268,212 

3, 667, 342 

4,134,194 

4,661,693 

5,171,470 

5,741,268 

6,308,259 

6,853,926 

7, 472, 324 

8,068,838 

8, 700, 020 

9,358,111 

10,020,239 

10,644,040 

11,226,124 

11,736,887 



$97, 553, 023 

1,121,795 
1,261,819 
1,390,485 
1,5.56,632 
1,705,135 
1,861,499 
2,003,086 
2,129,118 
2, 252, 506 
2,317,860 
2,392,028 
2,441,271 
2,491,484 
2,559,337 
2,621,035 
2,679,979 
2,726,937 
2,791,401 
2,871,945 
2,940,921 
3,047,310 
3,138,272 
3, 235, 543 
3,323,097 
3,390,712 
3,442,268 
3,469,245 
3,481,754 
3,495,463 
3, 483, 861 
3,454,704 
3,419,266 
3,373,275 
3,314,099 
3,232,814 
3,135,067 



$232, 773, 690 



$52,850,870 



$51,397,218 



$104,248,088 



1,121,795 

1,275,827 

1,426,988 

1,633,145 

1,832,957 

2,057,640 

2,280,2.34 

2, 499, 671 

2,726,246 

2,890,539 

3,099,086 

3,285,789 

3,504,950 

3,770,456 

4,033,763 

4,321,413 

4,602,513 

4,950,113 

5,361,782 

5, 629, 086 

6, 315, 522 

6, 805, 614 

7,369,737 

7,984,790 

8,562,182 

9,183,536 

9,777,504 

10,335,680 

10, 967, 787 

11,5.52,699 

12,154,724 

12,777,377 

13,393,514 

13,958,139 

14, 458, 938 

14,871,954 



6, 834 

20, 428 

45, 745 

77, 505 

125, 051 

179, 179 

240, 654 

298, 473 

341,583 

405, 951 

463,689 

528,099 

596, 568 

669,621 

738, 254 

813,344 

902, 076 

1,006,032 

1,107,669 

1,284,459 

1,428,818 

1,611,255 

1,814,9.30 

2,010,982 

2,192,352 

2,375,382 

2,513,964 

2,721,595 

2,927,127 

3,177,801 

3,449,223 

3,762,363 

4,061,247 

4, 350, 884 

4,601,733 



706,290 
803,660 
892, 056 
1,020,092 
1,123,599 
1,249,851 
1,358,948 
1,449,713 
1,532,090 
1,553,682 
1,577,259 
1,570,667 
1,556,937 
1,545,965 
1,5.37,544 
1,511,480 
1,485,348 
1,465,143 
1,456,133 
1,438,410 
1,465,515 
1,482,258 
1,508,111 
1,5.30,210 
1,549,001 
1,548,476 
1,544,175 
1,538,943 
1,543,358 
1,546,149 
1,547,352 
1,. 552, 364 
1,561,293 
1,564,071 
1,551,927 
1,529,148 



706,290 
810, 494 
912, 484 
1,065,837 
1,201,104 
1,374,902 
1,538,127 
1,690,367 
1,830,563 
1,895,265 
1,983,210 
2,034,356 
2,085,036 
2,142,533 
2,207,165 
2,249,734 
2,298,692 
2,367,219 
2, 462, 165 
2, 546, 079 
2,749,974 
2,911,076 
3,119,366 
3,345,140 
3,559,983 
3, 740,*828 
3,919,557 
4,052,907 
4, 264, 953 
4,473,276 
4, 725, 153 
5,001,587 
5,323,656 
5,625,318 
5,902,811 
6, 130, 881 



30 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



Table IV. — Shoiving comparative cost to the Government during first 35 years of retiring 
employees on straight pensions and under the Perkins hill {S. 1944) — Continued. 



Period. 



Immediately. 

2 year 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

1 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

29 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

39 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 



Mail carriers. 



Excess cost 
of retiring 
mail carriers 
on straight 
pensions over 
cost of retir- 
ing mail car- 
riers under 
Perkins bill 
during first 
35 years. 



$57,621,100 



6,192 
13,082 
24,852 
39, 109 
53, 876 
72, 925 
94,918 
126,468 
166,020 
214, 695 
272, 414 
345,597 
435,729 
523,164 
638,916 
757, 141 
899,543 
070,775 
101,083 
426, 888 
589,794 
774, 483 
985, 086 
182,184 
453,504 
717,028 
001,041 
290,758 
555,998 
828, 792 
100, 427 
369,182 
005,161 
833, 217 
051,058 



Cost of retir- 
ing mail car- 
riers under 
Perkins bill 
during first 
35 years. 



$26,153,595 



156, 449 

187,943 

217,500 

246,545 

273, 947 

294,011 

312,044 

326,639 

347,075 

371,103 

394,799 

424, 154 

459, 273 

503, 673 

542,928 

597,995 

648, 186 

708,207 

776,330 

839,736 

892,680 

940,521 

989,799 

1,036,572 

1,072,848 

1,122,372 

1,154,148 

1,178,888 

1,197,461 

1,197,318 

1,188,837 

1,172,208 

1,146,978 

1,114,770 

1,079,298 

1,040,360 



Cost of retir- 
ing maU car- 
riers on 
straight pen- 
sion confer- 
ring benefits 
of Perkins 
bill during 
first 35 years. 



3,774,695 



156,449 

194, 135 

230, 582 

271,397 

313,056 

347, 887 

384, 969 

421,557 

473,543 

537, 123 

609, 494 

696,568 

804, 870 

939, 402 

1,066,092 

1,236,911 

1,405,327 

1,607,750 

1,847,105 

1,940,819 

2,319,568 

2,530,315 

2,764,282 

3,021,658 

3,255,032 

3,575,876 

3,871,176 

4, 179, 929 

4, 488, 219 

4,753,316 

5,017,629 

5, 272, 635 

5,516,160 

5,719,931 

5,912,515 

6,091,418 



Railway postal clerks. 



Excess cost 
of retiring 
railway 
postal clerks 
on straight 
pensions over 
cost of retir- 
ing railway 
postal clerks 

under 

Perkins bill 

during first 

35 years. 



Cost of retir- 
ing railway 
postal clerks 

under 

Perkins bill 

during first 

35 years. 



$24,748,697 



$20,002,210 



982 

2,993 

5,916 

11,208 

17,214 

25,044 

34,981 

48,799 

65,076 

86,412 

108, 415 

139,770 

178, 822 

219,943 

264,264 

305,091 

357,093 

413,030 

479,413 

556, 865 

648,730 

748,456 

861,677 

978,304 

1,095,412 

1,215,849 

1,338,921 

1,459,971 

1,585,713 

1,693,427 

1,808,461 

1,888,694 

1,977,632 

2,042,023 

2,084,096 



259,056 
270,216 
280,929 
289,995 
307, 589 
317,637 
332,094 
352,766 
373,341 
393,075 
419,970 
446, 450 
475,274 
509,699 
540,563 
570,504 
593, 403 
018,051 
639, 482 
662,775 
689,115 
715, 493 
737,633 
756,315 
768, 863 
771,420 
770, 922 
763,923 
754,644 
740,394 
718, 515 
694,694 
665,004 
635,258 
601,589 
565,559 



Cost of retir- 
ing railway 
postal clerks 
on straight 
pension con- 
ferring bene- 
fits of 
Perkins bill ; 
during first j 
35 vears. 



$44, 750, 907 



259,056 

271,198 

283, 922 

295,911 

318,797 

334, 851 

357, 138 

387,747 

422, 140 

458, 151 

506,382 

554, 865 

615,044 

688,521 

760, 506 

834,768 

898, 494 

975, 144 

1,052,512 

1,142,188 

1,245,980 

1,364,223 

1,486,089 

1,617,992 

1,747,167 

1,866,832 

1,986,771 

2, 102, 844 

2,214,615 

2,326,107 

2,411,942 

2,503,155 

2, 553, 698 

2,012,890 

2,643,612 

2,649,655 



The following table, taken from the report referred to (p. 50)^ 
shows that the cost of a civil pension conferring the same benefits as 
the Gillctt bill (H. R. 22013) and payable entirely out of the Public 
Treasury would be $232,773,690 (luring the next 35 years, as con- 
trasted with the cost of the Gillett bill for the same period at 
$73,136,765: 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 31 



Table V. — Showing comparative cost to the Government during first 35 years of retiring 
employees on straight -pensions and under the Gillett hill (H. R. 22013). 



Period. 



All employees. 



Excess cost 

of retiring all 

employees 

on straight 

pensions 

over cost of 

retiring all 

employees 

under Gillett 

bill during 

first 35 years. 



Cost of retir- 
ing all em- 
ployees un- 
der Gillett 
bill for first 
35 years. 



Cost of retir- 
ing all em- 
ployees on 
straight pen- 
sions confer- 
ring benefits 
of Perkins 
bill shown 
for first 35 
years. 



General employees. 



Excess cost 
of retiring 
general em- 
ployees on 

straight pen- 
sions over 

cost of retir- 
ing general 
employees 

under Gillett 

bill for first 

35 years. 



Cost of retir- 
ing general 
employees 

under Gillett 

bill shown 

for first 35 

years. 



Cost of retir- 
ing general 
employees 
on straight 
pensions con- 
ferring bene- 
fits of Per- 
kins bill 
shown for 
first 35 years. 



$159,636,925 



S73, 136, 765 



$232, 773, 690 



$73,291,503 



$30,956,585 



1, 248, 088 



Immediately 

1 year 

2 years 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 



143,251 
183, 722 
225,010 
296, 713 
377, 137 
483, 844 
604, 428 
726,230 
863, 729 
980,509 
136,821 
282, 331 
458,826 
671, 379 
898,435 
141, 890 
392, 690 
692, 705 
054,058 
277,090 
909,050 
353, 846 
876, 669 
466, 180 
035,966 
649,876 
264, 466 
859, 281 
532,510 
194,280 
880,297 
585, 654 
325,203 
009,845 
634,530 
,168,474 



978,544 
1, 092, 105 
1, 201, 978 
1,336,432 
1,455,820 
1,573,796 
1,675,806 
1, 773, 441 
1,862,517 
1,910,030 
1,962,265 
2,003,458 
2,046,124 
2,099,077 
2,135,328 
2,179,523 
2,209,823 
2, 257, 408 
2,307,724 
2,351,996 
2,406,472 
2,451,768 
2,493,068 
2,518,610 
2,526,216 
2,533,660 
2,513,038 
2, 476, 399 
2,435,277 
2, 358, 419 
2, 274, 427 
2,191,723 
2,068,311 
1,948,294 
1,824,408 
1,703,480 



1,121,795 
1,275,827 
1, 426, 988 
1,633,145 
1,832,957 
2,057,640 
2,280,234 
2, 499, 671 
2,726,246 
2,890,539 
3, 099, 086 

3. 285. 789 
3,504,950 
3, 770, 456 
4,033,763 
4,321,413 
4,602,513 
4, 950, 113 
5,361,782 
5,629,086 
6,315,522 
6,805,614 
7, 369, 737 

7. 984. 790 
8,562,182 
9, 183, 536 
9,777,504 

10, 335, 680 
10, 967, 787 
11,552,699 
12,154,724 
12,777,377 
13,393,514 
13,958,139 
14,458,938 
14,871,954 



125,977 

159, 796 

191, 773 

247, 796 

306, 150 

391, 087 

482, 702 

570,325 

659,329 

717,534 

798, 130 

858, 814 

925, 760 

1,002,542 

1, 090, 965 

1, 164, 674 

1,248,229 

1,344,760 

1,468,023 

1,583,809 

1,798,518 

1,976,437 

2,201,062 

2,453,463 

2, 694, 741 

2, 910, 040 

3,131,832 

3, 313, 939 

3, 570, 962 

3,834,130 

4, 139, 178 

4, 468, 924 

4,853,520 

5,217,325 

5,554,128 

5,835,129 



580,313 

650, 698 

720,711 

818,041 

894,954 

983,815 

1,055,425 

1, 120, 042 

1,171,234 

1, 177, 731 

1,185,080 

1,175,542 

1,159,276 

1,139,991 

1,116,200 

1,085,060 

1,050,463 

1,022,459 

994, 142 

962,270 

951,456 

934, 639 

918,304 

891, 677 

865,242 

830, 788 

787, 725 

738, 968 

693, 991 

639, 146 

585,975 

5.32,663 

470, 136 

407, 993 

348, 683 

295, 752 



706,290 
810, 494 
912, 484 
1,065,837 
1,201,104 
1,374,902 
1,538,127 
1,690,367 
1,830,563 
1,895,265 
1,983,210 
2,034,356 
2,085,036 
2,142,533 
2,207,165 
2, 249, 734 
2, 298, 692 
2, 367, 219 
2,462,165 
2,546,079 
2, 749, 974 
2,911,076 
3,119,366 
3,345,140 
3, 559, 983 
3,740,828 
3,919,557 
4,052,907 
4, 264, 953 
4,473,276 
4,725,153 
5,001,587 
5,323,656 
5, 625, 318 
5,902,811 
6,130,881 



32 EEPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

Table V. — Showing comparative cost to the Government during first S5 years of retiring 
employees on straight pensions and under the Gillett bill (H. R. 22013) — Continued. 



Period. 



Mail carriers. 



Excess cost 
of retiring 
mail carriers 
on straight 
pensions over 
cost of retir- 
ing mail car- 
riers under 
Gillett bill 
during first 
35 years. 



Cost of retir- 
ing mail car- 
riers under 
GUlett bill 
shown for 
first 35 years. 



Cost of retir- 
ing mail car- 
riers on 
straight pen- 
sions confer- 
ring benefits 
of PerkiQS 
bill shown 
for first 35 
years. 



Railway postal clerks. 



Excess cost 
of retiring 
railway 
postal clerks 
on straight 
pensions over 
cost of retir- 
ing railway 
postal clerks 
under Gillett 
bill for first 
35 years. 



Cost of retir- 
ing railway 
postal clerks 
under Gillett 
bUl shown 
for first 35 
years. 



Cost of retir- 
ing railway I 
postal clerks ] 
on straight ' 
pensions con-l 
ferrlng bene- 
fits of 
Perkins bill 
shown for first 
35 years. 



,189,336 $25,585,359 



3, 774, 695 



$28,156,086 



$16,594,821 



Immediately 

1 year 

2 years 

3 years 

4 years 

6 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 



6,544 

13,597 

25,468 

39,867 

54, 709 

73,995 

96,059 

127,968 

167,934 

216,854 

275,067 

348,443 

438, 886 

526,525 

642, 907 

761,885 

904,093 

1,076,803 

1,108,096 

1,435,101 

1,599,914 

1,787,042 

2,000,775 

2,202,284 

2,478,741 

2, 746, 127 

3,033,900 

3,327,021 

3,600,232 

3,875,080 

4, 147, 641 

4,416,157 

4,652,223 

4, 880, 938 

5,099,671 



155, 660 

187,591 

216,985 

245, 929 

273,189 

293, 178 

310, 974 

325,498 

345,575 

369,189 

392, 640 

421,501 

456, 427 

500,516 

539,567 

594,004 

643,442 

703, 657 

770,302 

832, 723 

884,467 

930,401 

977, 240 

1,020,883 

1, 052, 748 

1,097,135 

1,125,049 

1,146,029 

1,161,198 

1,153,084 

1,142,549 

1,124,994 

1,100,003 

1,067,708 

1,031,577 

991,747 



156,449 

194,135 

230,582 

271,397 

313,056 

347, 887 

384,969 

421,557 

473, 543 

537,123 

609,494 

696,568 

804,870 

939,402 

1,066,092 

1,236,911 

1,405,327 

1,607,750 

1,847,105 

1,940,819 

2,319,^8 

2,530,315 

2, 764, 282 

3,021,658 

3,255,032 

3,575,876 

3,871,176 

4,179,929 

4,488,219 

4,753,316 

5,017,629 

5, 272, 635 

5,516,160 

5,719,931 

5,912,515 

6,091,418 



16,485 

17,382 

19,640 

23,449 

31,120 

38, 048 

47, 731 

59, 846 

76,432 

95,041 

121,837 

148,450 

184, 623 

229, 951 

280,945 

334,309 

382,576 

443,852 

509, 232 

585, 185 

675,431 

777,495 

888, 565 

1,011,942 

1,138,941 

1,261,095 

1,386,507 

1,511,442 

1,634,527 

1,759,918 

1,866,039 

1,969,089 

2,055,526 

2, 140, 297 

2,199,464 

2,233,674 



242, 571 
253,816 
264,282 
272,462 
287, 677 
296, 803 
309,407 
327,901 
345, 708 
363,110 
384,545 
406,415 
430,421 
458,570 
479, 561 
500,459 
515,918 
531,292 
543, 280 
557,003 
570,549 
586, 728 
597,524 
606,050 
608,226 
605, 737 
600,264 
591,402 
580,088 
566, 189 
545,903 
534,066 
498,172 
472,593 
444,148 
415,981 



$44, 750, 907 



259,056 

271,198 

283,922 

295,911 

318, 797 

334,851 

357, 138 

387, 747 

422, 140 

458, 151 

506,382 

554,865 

615,044 

688,521 

760,506 

834, 768 

898,494 

975, 144 

1,052,512 

1,142,188 

1,245,980 

1,364,223 

1,486,089 

1,617,992 

1,747,167 

1,866,832 

1,986,771 

2,102,844 

2,214,615 

2,326,107 

2,411,942 

2,503,155 

2,553,698 

2,612,890 

2,643,612 

2, 649, 655 



eeport to the president on retirement allowances. 33 

Reluctance of Congress to Provide for Retirement of Civil 
Employees on Account of Expense. 

Congress has not been willing to pass any of these bUls. Its reluc- 
tance would seem to be due to the fact that it is not yet satisfied that 
the expense incident to establishing these plans — through the pay- 
ment of annuities from the Federal Treasury to those who were too 
old to provide for themselves — is justified by the loss incurred through 
the inefficiency of aged employees. No calculations were made to 
show the saving that would result to the Government through removal 
of the superannuated as an offset to the expense necessarily incurred 
in retiring them. This calculation was not possible at the time, as 
no statistics showing the actual amount of work performed by the 
aged employees were available on which to base such calculations. 

expense of establishing proposed contributory plan justified. 

It can not be denied that any reasonably adequate plan of retire- 
ment will probably require for a number of years an appropriation 
fully equal to any reasonable estimate of the loss now suffered through 
the inefficiency of the aged. The comixdssion believes, however, that 
such expenditure would be more than justified if at the time the plan 
takes effect a scale of deductions from the salaries of those below the 
age of retirement or thereafter entering the service is established 
which will result in the annual cost to the Government, say, in 20 
years being reduced to an amount less than the loss that will then 
be incurred by the Government if no plan of retirement is adopted, 
and which ultimately, say by the time all employees now in the service 
are dead, will be completely self-supporting except for the cost of 
administration and any expense that might be incurred by the Gov- 
ernment through failure to realize the rate of interest guaranteed on 
the deposits of the employees. 

Arguments of Employees Against Contributory Plan Answered. 

Many of the employees have opposed these bills. Their opposi- 
tion is based on the following arguments : 

(1) That the deductions from salary would be burdensome and 
could only be met by an increase in salaries, which would be in effect 
a pension in disguise, since the Government would be meeting the 
expense of retiring its employees. 

(2) That a cash sum to the credit of an employee, which could only 
be obtained by resignation, would offer a constant temptation to him 
to leave the service. 

(3) That the rate of interest guaranteed on deposits of the employ- 
ees is below the rate at which the employees can safely invest their 
own savings. 



34 EEPORT TO THE PEESIDENT ON EETIREMENT ALLOWANCES. 

(4) That either of the two ways generally proposed on which an 
employee's account with the Government could be settled on his 
retirement from the service is objectionable; on the one hand, the 
granting of annuities on terms which mean the forfeiture of the accu- 
mulation not consumed in pension payments prior to death would 
cause dissatisfaction to his family, and on the other hand, the return 
in one cash sum of the entire amount to the credit of the employee 
at retirement would, in many cases, result in unwise investments and 
loss of savings, so that such employee would be worse off than if no 
plan of retirement had been provided for him. 

(5) That the fund accumulated would finally become so large as 
to be a source of graft and political demoralization. 

DEDUCTIONS FROM SALARIES OF EMPLOYEES NOW IN SERVICE SHOULD 

BE LIMITED. 

(1) In order to meet the objections of the employees concerning 
the amount of the monthly deductions required by the proposed 
contributory plans, the commission believes that the Government 
should not only agree to pay the full amount of annuities to all em- 
ployees retiring immediately, but that it should also agree to make up 
any deficit in the sum which a maximum deduction of 8 per cent from 
the salary of any employee will provide. The commission believes 
that by limiting the deduction which may be made from the salary of 
any employee to 8 per cent the objection as to the amount of the de- 
ductions will, in the main, be removed. Certainly, if the salaries 
of any of the Government's employees are so low that the saving of 8 
per cent of such salaries would work a hardship on any considerable 
number of employees, it is beyond argument that such salaries should 
be increased. If the margin between the amount of the salary and 
the cost of the bare necessities of life is so narrow as to make the 
saving of this amount impossible, then employees so situated are as 
certain to become a burden to the Government when age overtakes 
them as they are to live. It is manifest that the more quicldy tliis 
condition is remedied by the payment of adequate salaries the less 
will be the future cost of superannuation. This commission would 
certainly recommend an increase of salaries, if such an increase is 
necessary to put the employees on a basis that w^ould make it possible 
for them to save 8 per cent of their salaries. But the commission 
holds that such an increase, which would be a reward for services at 
the time they are rendered and for all those in the service, would be 
distiiictl}'^ different from the grant of a straight pension, which would 
be a reward for services after they were rendered, and for only the 
very few who had lived to reach a certain age. As pointed out in the 
r[uotation from the report on ci^^l-service retirement in Great Britain 
hereinafter referred to, the operation of compound interest would 



KBPORT TO THE PRESIDENT ON EETIEEMENT ALLOWANCES. 35 

make it possible to increase salaries and establish a contributory 
system of retirement at less cost to the employees than to give them a 
pension system under which the benefits are paid directly from the 
Treasury, but considered a part of the payroll. An increase in salary 
is, therefore, decidedly not "a pension in disguise." 

GOVERNMENT SHOULD NOT PENALIZE EMPLOYEES LEAVING SERVICE. 

(2) The commission believes that there is little foundation in fact 
for the argument that a cash sum to the credit of an employee would 
cause him to leave the service. If a cash sum to his credit would 
enable him to better his condition outside the service, it is surely to 
his interest to have such a cash sum, rather than that a plan of retire- 
ment should be adopted which would attach a penalty to separation 
from the service, as would be the case if a civil pension were estab- 
lished under which an employee leaving the service would forfeit his 
partly earned pension. The commission believes that the Govern- 
ment should pay reasonable and fair compensation to its employees 
at the time the services are rendered, and should endeavor to hold 
its employees fairly in competition with private employers. No just 
Government will wish to do anything that could be construed as 
penalizing its employees. 

GOVERNMENT SHOULD PAY LIBERAL RATE OF INTEREST ON ENFORCED 

SAVINGS. 

(3) The commission believes that the rate of interest guaranteed 
on deposits of the employees should not be below the rate at which 
the average employee can safely invest his savings. The rate of 
interest named in most of the contributory plans that have been 
proposed has been 3^ per cent, compounded annually. The com- 
mission believes that it would be fair both to the Government and to 
the employees to guarantee a minimum rate of interest of 4 per cent, 
compounded annually, and that during a long period of years the Gov- 
ernment would be able to realize nearly, if not quite, this rate of 
interest if the fund were invested in the securities prescribed in the 
contributory bills heretofore proposed. These bills authorize the 
investment of the fund in substantially the classes of bonds m which 
the New England savings banks may invest their funds. If any aid 
is to. be given by the Government to a plan of retirement, other than 
that necessary to establish the plan, such aid can be given most 
equitably by guaranteeing the minimum rate of interest which shall 
be paid to the employees on their deposits. On short periods of 
service there is little diiTerence between the results obtained at 3^ 
and 4 per cent, but on long periods the results at 4 per cent are con- 
siderably greater than at 3^ per cent. A higher rate of interest 



36 REPORT TO THE PRESIDENT ON" RETIREMENT ALLOWANCES. 

would be desirable for two reasons : (1) It would mean lower monthly- 
deductions from salaries, and (2) a considerably greater return to the 
employees who entered the service early in life and remained to the 
age of retirement than to the employees who entered late and retired 
early. It is believed also that the deposits of employees leaving the 
service or dying in the service should be returned with interest at 4 
per cent, compounded annually, the same rate as it is proposed to 
pay to those who are retired for age. 

BOTH ANNUITY AND CASH SETTLEMENTS SHOULD BE ARRANGED TO 
PROTECT INTERESTS OF EMPLOYEE. 

(4) The commission believes that either of the two ways generally 
proposed for settling an employee's account on retiring is inadvisable, 
but that these settlements could be so adjusted that either one of them 
would be satisfactory. 

The commission agrees with the arguments that annuities which 
mean the forfeiture of the accumulation not consumed in pension 
payments prior to death would cause dissatisfaction, and, therefore, 
believes that the annuities should be based on rates of premium which 
will enable the Government to return to the family of the deceased 
employee any balance to his credit not paid to him prior to his death. 

The commission agrees with those who contend that the return in 
one cash sum of the entire amount to the credit of the employee at 
retirement would result, in many cases, in unwise investments and 
loss of savings, and believes that an employee leaving the service after 
the age of 60 should be paid the sum to his credit, when in excess of 
$600, in not less than 10 annual installments. The unpaid balance of 
such deposit should be credited annually with interest at 4 per cent. 

NO DANGER IN SAVINGS FUND. 

(5) The commission believes that there is little, if anything, in the 
history of any government to justify the argument that the fund ac- 
cumulated under a contributory system would ultimately become so 
larg'e as to cause graft and political demoralization. The system of 
postal savings banks, so well thought of in other countries as well as 
in the United States, provides for the accumulation of a trust fund at a 
far greater rate than would be possible under any plan of retirement 
based on savings of the employees. The neighboring Government of 
Canada has, moreover, not only created a trust fund by the estab- 
lishment of postal savings banks, but, satisfied with its success in that 
field, has recently established a system of Government annuities which 
enables not merely officeholders, but any citizen of the country, to 
purchase annuities from the Government. 



report to the president on" retirement allowances. 37 

Commission's Effort to Ascertain Annual Loss to Government 
Through Inefficiency of Aged Employees. 

With these ideas in mind, this commission has endeavored to 
ascertain definitely the annual loss due to the incompetence of the 
aged employees, as nearly as it can be calculated, and to determine 
what expense the Government would be justified in incurring in 
order to wipe out that loss. It has also sought to modify the sug- 
gested bills in such a way as to answer the purpose of the Govern- 
ment in passing a retirement bill and at the same time meet the 
objections of the employees as far as possible. 

The only statistics that have ever been compiled concerning the 
loss sustained by the Government through superannuation were 
collected by the Civil Service Commission in 1906 and covered 
only the classified service in the District of Columbia. They showed 
the loss for one year only, and were so presented that a satisfactory 
basis for calculating the probable future loss could not be derived 
from them. On the other hand, all of the statistics that have been 
prepared thus far concerning the cost of estabHshing the various 
plans have covered the entire classified civil service and have been 
worked out to show the amount that would have to be appropriated 
by the Congress, not only the first year after the adoption of the 
plan but each year thereafter until all employees now in the service 
will have died. It will thus be seen that the statistics as to cost 
and those available as to loss were not comparable. The commis- 
sion felt that the statistics as to loss should be made complete in 
order that both sides of the account could be presented, i. e., the 
amounts that will have to be appropriated annually, on one side, 
and the savings that will result from such appropriations, on the 
other side. 

In order to consider both sides of the problem — the saving as 
well as the cost — the commission prepared a schedule, the form of 
which is shown as Appendix E of this report. The heads of depart- 
ments and bureaus were requested to fill one of these schedules for 
each member of the permanent classified civil service in the depart- 
ments and independent offices at Washington, D. C. (excluding all 
field or local service in the District of Columbia, but including per- 
sons covered by Schedule A of the civil-service rules, and including 
persons holding unclassified positions but having eligibihty for 
transfer to the competitive classified service). Schedules covering 
22,754 employees coming under this definition were returned to the 
commission, and the statistics presented in this report are based 
on the facts given in those schedules. They show that the loss from 
superannuation in the classified service in the District of Columbia 



38 REPORT TO THE PRESIDENT ON" RETIREMENT ALLOWANCES. 

at the time the schedules were filled amounted to $220,954, dis- 
tributed according to ages as shown in the following tables : 

Table VI. — Shoiving the number of employees in the classified civil service in the District 
of Columbia 70 years of age and over, the amount of salaries paid, the amount and per 
cent of salaries earned, and the amount and per cent of salaries unearned or the loss due 
to superannuation. 



Age. 



80 years and over 

79 years 

78 years 

77 years 

76 years 

75 years 

74 years 

73 years 

72 years 

71 years 

70 years 

Total 



Number 
of em- 
ployees. 



60 
27 
35 
42 
49 
79 
84 
100 
117 
169 
189 



951 



Total salaries. 



Paid. 



S71, 
33, 
44, 
53, 
64, 
96, 
103, 
131, 
144, 
211, 
240, 



1,196,310 



Earned. 



Amount. Per cent. 



$46,486 
27, 980 
31,499 
42, 394 
53,479 
79,038 
81,519 
105,048 
121,287 
180,564 
206,062 



975,356 



64.75 
83.13 
70.83 
79.38 
83.01 
82.17 
78.95 
79.59 
83.67 
85.23 
85.74 



81.53 



Unearned. 



Amount. Per cent 



$25,304 
5,680 
12,971 
11,011 
10,946 
17,147 
21,731 
26,932 
23,668 
31,301 
34, 263 



220,954 



35.25 
16.87 
29.17 
20.62 
16.99 
17.83 
21.05 
20.41 
16.33 
14.77 
14.26 



18.47 



Calculations based on these schedules show, furthermore, that this 
loss is increasing steadily and will be doubled in the course of 20 
years. These figures are not merely conservative; they are known to 
be less than the fact. 



RELUCTANCE OF OFFICERS TO REPORT ON INDIVIDUAL EMPLOYEES 
MAKES FIGURES OF LOSS LESS THAN THE FACT. 

In order to make the inquiry wholly impersonal, and thus remove, 
as far as possible, the natural reluctance of officers to give facts con- 
cerning the efficiency of individual employees, the commission re- 
quested the heads of departments and bureaus to detach the stub 
bearing the name of the employee at the head of the schedule before 
returning the schedule to the commission. The commission is con- 
vinced, however, that the officers making the reports were still 
reluctant to turn in schedules that rated anyone as notably inefficient, 
and that the schedules, in the aggregate, greatly understate the loss 
which the Government is sustaining through the retention of em- 
ployees who are no longer able to render efficient service. Believing, 
however, that it would be preferable to accept the returns as made by 
the departments rather than to undertake to secure any revision 
which might make it appear that the commission was endeavoring to 
''make a case," and had thus presented statistics of loss due to super- 



REPORT TO THE PRESIDEJSTT ON RETIREMENT ALLOWANCES. 39 

annuation that were greater than the fact, the commission has not 
attempted to modify the returns in any way, although it is apparent 
that the results are more than conservative, and perhaps do not show 
much more than half the actual loss sustained by the Government. 
The figures are useful, however, for it is possible to derive from them 
tables showing the future growth of. superannuation that will take 
place if no plan of retirement is adopted. They also enable the com- 
mission to show, as an absolute offset to the cost which must be 
incurred by the Government in establishing the plan, the minimum 
amount the Government will save from the adoption of the plan of 
retirement. 

BASIS OF ESTIMATE OF FUTURE LOSSES FROM SUPERANNUATION. 

The number of employees reported by the departments as belong- 
ing to the classified civil service in the District of Columbia, distrib- 
uted according to age, salary paid, salary earned, the per cent of 
salary earned, and the per cent of salary not earned at the various 
ages, is shown by the following table, which is the basis used in 
estimating future losses from superannuation : 

Table VII, — Showing the number of employees in the classified civil service in the District 
of Columbia, distributed according to age, the total salaries paid, total salaries earned, 
the per cent of salary earned, and per cent of salary not earned. 



Age. 



Niunber of 
employees. 



Salary. 



Paid 
(amount). 



Earned 
Earned I (percent), 
(amount). (") 

(c) 



Unearned 

(per cent). 

100- (e) 



(a) 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 



(6) 



17 
134 
190 
247 
279 
372 
397 
491 
505 
612 
553 
564 
564 
547 
666 
638 
624 
623 
625 
645 
636 
589 



(c) 

$6, 575 
55,728 
91,695 
158,787 
197,371 
313,780 
336,089 
429, 138 
485,025 
513,169 
596,750 
614,945 
632, 416 
618,371 
792,012 
727,416 
739, 959 
792,951 
786, 547 
795, 190 
792,864 
752, 496 



(d) 

$6,575 
55,428 
91, 185 
158,009 
197,111 
313,350 
335, 509 
428,368 
483,751 
511,039 
595,048 
613, 103 
628, 996 
614,991 
788, 376 
724, 541 
735, 737 
790, 161 
782, 472 
791, 130 
788, 729 
749,683 



(e) 

100. 00 
99.46 
99.44 
99.51 
99.87 
99.86 
99.83 
99.82 
99.74 
99.68 
99.71 
99.70 
99.46 
99.45 
99.54 
99.60 
99.43 
99.66 
99.48 
99.49 
99.48 
99.63 



(/) 



0.00 
.54 
.56 
.49 
.13 
.14 
.17 
.18 
.26 
.42 
.29 
.30 
.54 
.55 
.46 
.40 
.57 
.35 
.52 
.51 
.52 
.37 



40 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

Table VII. — Showing the number of employees in the classified civil service in the District 
of Columbia, distributed according to age, the total salaries paid, total salaries earned, 
the per cent of salary earned, and per cent of salary not earned — Continued. 



Number of 
employees. 



Salary. 



Paid 
(amount). 



Earned 
(amount). 



Earned 

(percent). 

(d)_ 

(c) 



(o) 



38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years 

47 years 

48 years 

49 years 

50 years 

51 years 

52 years 

53 years 

54 years 

55 years 

56 years 

57 years 

58 years 

59 years 

60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 

68 years 

69 years 

70 years 

71 years 

72 years 

73 years 

74 years 

75 years- 

76 years 

77 years 

78 years 

79 years 

80 years 

81 years 

82 years 

83 years 

84 years 

85 years and over. 



(6) 



615 
603 
495 
620 
609 
570 
474 
500 
444 
405 
382 
388 
397 
401 
386 
380 
303 
301 
267 
260 
261 
203 
220 
202 
218 
201 
207 
188 
242 
236 
211 
196 
189 
169 
117 
100 



S791,795 
762,361 
661,908 
831,090 
835, 573 
772, 955 
648, 285 
702,532 
602,346 
555, 435 
521,387 
533, 208 
554,740 
571,574 
530,320 
499,682 
401,540 
406, 220 
355, 043 
341,386 
344, 050 
265,020 
295, 893 
250, 860 
275,470 
242,425 
271,250 
245,550 
315,796 
315,045 
281,525 
253,275 
240,325 
211, 865 
144, 955 
131,980 
103,250 
96,185 
64, 425 
53,405 
44,470 
33, 660 



(d) 
S785,351 
758, 131 
657,439 
825, 225 
828,588 
766,635 
642,665 
696,472 
594,874 
548,893 
514, 771 
523,063 
547,382 
562, 842 
519,138 
493, 175 
391,285 
398, 436 
344, 674 
328,716 
337,946 
256,560 
285,188 
234,518 
259,993 
229,921 
250,327 
229,501 
292, 816 
285,391 
253,816 
222, 626 
206,062 
180,564 
121,287 
105,048 
81,519 
79, 038 
53,479 
42,394 
31,499 
27,980 



(«) 
• 99.19 

99.45 

99.32 

99.29 

99.16 

99.18 

99.13 

99.14 

98.76 

98.82 

98.73 

98.10 

98.67 

98.47 

97.89 

98.70 

97.45 

98.08 

97.08 

96.29 

98.23 

96.80 

96.38 

93.49 

94.38 

94.84 

92.29 

93.46 

92.72 

90.59 

90.16 

87.90 

85.74 

85.23 

83.67 

79.59 

78.95 

82.17 

83.01 

79.38 

70.83 

83.13 

68.37 

69.48 

66.12 

53.30 

81.74 

48.70 



EEPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 41 

It will be observed that the trend of the figures showing the per 
cent of salary earned is slightly downward from a very early age. 
Tliis does not mean that, on the average, efficiency begins to decline 
from the earliest age given in the table, but it merely shows the effect 
of the present system of promoting employees with length of service 
without changing the character of their work. In order to take into 
account the loss growing out of this system of promotions, and the 
loss resulting from the practice of transferring the older clerks to 
work of a lower class without a corresponding reduction in salary, 
rating officers were requested to state the amount of salary earned 
by each clerk on the basis of ''an efficient employee engaged on the 
class of work assigned to the employee rated," and an "efficient 
clerk" was defined to mean "such a clerk as the Government may 
reasonably require for the salary paid." It will be seen, therefore, 
that the loss reported and shown in the table as salary unearned is 
due to the present system of disregarding to a large extent the char- 
acter of an employee's work in fixing his salary; i. e., of (a) increasing 
his salary with length of service without assigning him to a higher 
class of work; (b) of not decreasing his salary when by reason of his 
advanced age he is assigned to a lower grade of work; and (c) of not 
decreasing his salary when at any age lie is found inefficient. 

PER CENT OF SALARY EARNED AT VARIOUS AGES. 

The per cent of salary earned at the various ages remains above 99 
from the youngest age at which persons are employed in the classified 
service up to age 46, at which age the per cent of salary earned falls 
to 98.76. From age 46 to 51, inclusive, the per cent of salary earned 
remains at 98 and a fraction. From this point on, two increasing 
tendencies in the trend of the per cents are apparent — (a) an increase 
in the variation from year to year and (b) an increase in the per 
cent of salary unearned. The increasing variation from year to year 
is due to two causes^ (a) the diminishing number of employees at the 
higher ages and (b) the increasing variation in the degree to which 
individuals retain their mental and physical activity as age advances. 
It is common observation that while some aged people retain their 
mental and physical activity, others are less fortunate. 

AGE AT WHICH LOSS JUSTIFIES RETIREMENT. 

One of the purposes of this inquiry was to ascertain at what age 
the amount of loss is sufficient to justify retirement. If no aid were 
to be given by the Government to employees below the ages at wliich 
the salary unearned would be sufficient to pay their entire annuities, 
it will be seen by reference to the foregoing table that the proper age 
of retirement (assuming that the schedules show the full loss sus- 
42245— H. Doc. 732, 62-2 4 



42 KEPOET TO THE PRESIDENT ON" RETIREMENT ALLOWANCES. 

tained by the Government from superannuation) would perhaps be 
85 years. Of the total salaries paid employees aged 85 years and 
over, they are reported to earn but 48.70 per cent. (See Table VII, 
p. 40.) It would seem apparent, therefore, that the Government 
would be the gainer by retiring all employees 85 years of age or over, 
on, say, half pay. The commission believes, however, that a plan 
of retirement which would provide only for people 85 years of age 
or over would be practically of no value, and that if the returns made 
by the departments had expressed the full loss due to superannuation, 
the results would have shown an immediate gain by retiring all persons 
at an age much below 85. 

Viewed in this light, the commission holds that it would be in the 
interest of good administration to adopt some lower age than the one 
at which the loss from superannuation equals the cost of retirement. 
It is believed that the statistics justify the adoption of age 70 as the 
proper age of retirement for employees in the departmental service in 
Washington. This belief is based on three grounds: (1) The fore- 
going table shows that at age 70 the loss from superannuation is con- 
siderable (14.26 per cent); (2) an inquiry covering the employees in 
one of the large offices of the Government in which the work is of such 
a character as to be capable of accurate measurement, both as to 
quantity and quality, and where it is known that the officer at the 
head of the bureau undertook to answer the commission's inquiry by 
basing the returns on an accurate record of work performed, shows 
that employees 70 years of age and over earn but 56.31 per cent of the 
salaries paid them. In this office there are 33 employees 70 years of 
age and over, the total salaries paid them amount to $40,600, and of 
this amount they are reported as not earning $17,740. Each of these 
employees could therefore be retired on $600 a year at a total cost 
to the Government the first year, over and above the present loss, of 
but $2,060; (3) 70 years is the oldest age adopted by any foreign 
Government for the retirement of civil employees. 

For these reasons the commission has adopted age 70 as the proper 
age for the retirement of employees in the classified service in Wash- 
ington. The commission believes that age 70 would also be the 
proper age of retirement for most of the employees engaged in clerical 
and professional occupations in the various services outside of Wash- 
ington. It is of course apparent that employees engaged in lines of 
work requiring special physical activity, such as that required of rail- 
way postal clerks, letter carriers, and persons employed in various 
mechanical trades, should be retired at an earlier age than 70 years. 
Earlier retirement for these classes of employment is justified because 
the physical energy usually begins to fail at an earlier age than does 
the mental. 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 43 

METHOD OF CALCULATING FUTURE LOSS TO GOVERNMENT FROM SUPER- 
ANNUATION. 

Having adopted the age of 70 as the age of retirement, it will be 
necessary to consider briefly the method of treating the statistics of 
the departments in calculating the future loss which the Government 
will sustain from superannuation if no retirement plan is adopted. 
(The statistics themselves show the amount of the loss at the present 
time.) While the percentages of loss due to superannuation given in 
Table VII, printed above, show a general tendency to increase after 
age 70, yet they present irregularities wholly inconsistent with nature, 
due to the fact, as stated above, that in the advanced ages the number 
of persons reported on is so small as not to give true averages, and 
because of the fact that with increasing age comes greater variation 
in the mental and physical activity of individuals. It would be 
wholly inconsistent with nature to assume, as the table shows, for 
example, that a greater degree of efficiency exists among persons 84 
years of age than exists among persons 83 years of age. These 
irregularities may be made to counterbalance each other, however, 
by graduation, using either a mathematical formula or the graphic 
method, or a combination of the two. In selecting a method of grad- 
uating statistics of this sort it is essential to select a method which 
will remove the inconsistencies, and yet follow faithfully the general 
tendencies of the ungraduated material. 

The method adopted by the commission for accomplishing this 
purpose was a combination of a modification of a formula first used 
by Woolhouse, the eminent English actuary, in graduating certain 
English mortality tables, and the graphic method. The greatest 
irregularities shown in the table were removed by two applications 
of this modification of Woolhouse's formula. 

The results of the second graduation were then plotted on cross- 
section paper ruled 10 by 10 to the centimeter and the remaining 
irregularities removed graphically by means of a spline. The 
ungraduated per cents, together with the results of the first and 
second graduations and the final results obtained by the use of the 
spline, are shown in the diagram on the page following. 

Having established the per cent of salary unearned at age 70 and 
all ages above 70, it was possible, by making certain assumptions, to 
calculate with fair accuracy the probable future loss which the 
Government will sustain from superannuation during a period of 
years to come if no plan of retirement is adopted. In this calcula- 
tion it was assumed that the per cent of salary now unearned at a 
given age will also be unearned by employees hereafter reaching that 
age. Since the heads of departments and bureaus were requested 
in filling the schedules to give the ages of employees at last birthday. 



44 EEPOET TO THE PRESIDENT ON EETIREMENT ALLOWANCES. 





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REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 45 



it was also assumed that employees, on the average, were six months 
older than the ages reported. For calculating the probability of 
living from the various ages to age 70, the American Experience Table 
of Mortality was used because that table was thought to represent 
fairly the probable mortality among Government employees up to 
age 70, but for calculating the probability of living from age 70, the 
Combined or Actuaries' Table of Mortality was used because it shows 
a greater expectation of life after the age of 70 than does the Ameri- 
can table and was therefore a more conservative basis for the calcula- 
tion. 

The following table shows the annual loss which the Goveriiment 
will sustain during the next 36 years if no plan of retirement is adopted: 

Table VIII. — Showing the annual loss that vnll be sustained by the Governvient during 
the next 36 years if no plan is adopted for retiring employees noiv in the classified civil 
service in the District of Columbia when 70 years of age. 



Year. 


Amount. 


Year. 


Amount. 


Year. 


Amount. 





1 $228, 387 
253, 019 
278,604 
303,163 
320, 751 
332,943 
342, 297 
349,276 
354,325 
357, 967 
360,367 
362,970 
367,308 


13 


$370,481 
375,040 
381,338 
390, 221 
403, 111 
417,749 
432, 277 
444,267 
453,885 
463, 181 
474,234 
489,358 
504,507 


26 


$520, 864 


1 


14 


27 


542, 952 


2 .. 


15. 


28 


565,615 
580,885 
592,148 


3 


16 


29 


4 . ... 


17. 


30 


5 


18 


31 


606, 004 


6 


19 


.32 


617,826 


7 


20 


33 


627,915 


8 


21 


34 


637, 618 


9 


22 

23 

24 

25 


35 


645, 448 


10 


36 


651,641 


11 

12 













1 The amount of the loss reported by the departments and independent Government establishments is 
shown at the bottom of Table VI, on p. 38, as $220,954. This amount represents the annual loss on Nov. 30, 
1911, while the loss shown above represents the loss that will take place during the following year. The 
difference in the amounts represents the increase that will take place during the year. 

Commission's Effort to Determine What Expense the Gov- 
ernment IS Justified in Incurring to Avoid Loss from Super- 
annuation. 

Having ascertained the amount of the loss which the Government 
will sustain among employees 70 years of age and over if no plan of 
retirement is adopted, the next step was to determine what expense 
the Government may reasonably incur in order to avoid that loss. 
Very little study of the problem suffices to show that the amount of 
loss sustained by the Government from superannuation is not great 
enough to justify the enormous expense of a straight pension system, 
especially when the effect on the service is considered. Although the 
less due to superannuation will increase as long as the service continues 



46 EEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

to grow, tho cost of a straight pension will increase much more rapidly, 
being twice as great the first year as the loss from superannuation and 
continuing to grow at a, greater rate than the loss from superannua- 
tion. There are in the departments at Washington 951 employees 
70 years of age or older who would be eligible for retirement immedi- 
ately. If each of these employees were pensioned at half pay with a 
maximum of $600 a year, the cost the first year would be approxi- 
mately $468,960, while the loss, as shown in the foregoing table, is 
only $228, o87. This adchtional outlay of $240,573 the first year, and 
an increasing amount each year thereafter, can not be justified on 
any ground, when the abuses sure to result from a civil pension are 
considered. It is probable, of course, that the losses reported by 
the departments were greatly understated, but even if the loss is 
twice as great, or $456,774 a year, it still would not warrant the estab- 
lishment of a plan of retirement the probable future cost of which 
can not be calculated. 

A straight-pension plan being dismissed from consideration, the 
alternative is a contributory plan. We have seen that even a con- 
tributory plan that will ultimately be self-supporting can not be 
estal)lished without some expense to the Government. The Gov- 
ernment will have to incur expense in two ways: (1) In retiring 
employees who are at or above the retirement age when the plan 
takes effect, who will have no time to save the money on w^hich to 
retire themselves; and (2) in assisting in the retirement of emplo3'ees 
who are below the retirement age w^hen the plan takes effect, and 
who wdll not have enough time to accumulate the whole of the amount 
necessary to retire themselves. In considering the amount that the 
Government can properly appropriate for such a purpose, two fac- 
tors besides the loss from superannuation must be taken into account. 
They are the maximum ileduction which can reasonably be withheld 
from the employee's salary and the minijiium annuity which must 
be providetl the employee on retirement in order to make practicable 
his elimination from the service when he reaches the age at which 
inefficiency usually begins to show. 

In the opinion of the commission, 8 per cent of sahiry is the maxi- 
mum amount whieh should be withheld from emplo3'ees already in 
the service. Employees entering hereafter should be required, how- 
ever, to lay aside whatever per cent of salary is necessary to provide 
the required retiring allowance. Reference to Table XI, on pages 51 
and 52, will show that the deductions from the salaries of new en- 
trants will not be burdensome except in the case of those who enter 
at ailvanced age. The commission thinks that the entrance of aged 
people into the service should be discouraged. 

In the opinion of (he commission the minimum annuit}^ which 
should be adopted is liaH' i)ay, with a maximum of $600. The com- 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 47 

mission believes that a scale of annuities governed entirely by salary 
and length of service would in many cases retire employees who 
entered the service late in life on annuities wholly inadequate for their 
maintenance, however simple their needs might be, while on the other 
hand, employees who had received large salaries for long periods 
might be retired on annuities considerably in excess of the amounts 
necessary to maintain them. The commission believes that a plan of 
retirement should be merely a means to an end, and that that end is 
greater efficiency in the public service through the retirement of 
employees after they have passed their period of greatest usefulness, 
and that this should be accomplished with as little tax upon either 
the employees or the Public Treasury as is possible. It is not the duty 
of the Government to assume control of the finances of the employees 
beyond the point that is necessary to protect itself against the reten- 
tion through sympathy of employees who are no longer capable of 
earning their salaries. The commission believes that a fair annuity 
on which employees may be retired if retained in the service to age 70 
is one-half pay, with a maximum annuity of $600. While $600 is not 
sufficient to purchase the luxuries of life, it is nevertheless sufficient to 
save the employee from destitution, even if he has been so unfortunate 
as to make no other provision for his declining years. 

Plan Presented by the Commission. 

Having determined the amount of loss which the Government is 
now sustaining through the inefficiency of the aged, and settled on the 
maximum deduction from salaries which can be required, and the 
maximum annuity that should be provided, the problem was to show 
what it would cost to establish a savings and annuity plan with such 
limitations and to compare that cost with the present loss through 
superannuation. The plan therefore provides for the retirement of 
all classified civil-service employees in the District of Columbia, at 
the age of 70, on half pay, with a maximum annuity of 1600, the 
annuity to be paid by the Federal Government in the case of those 
retiring immediately, but by contributions from their salaries in the 
case of all others, the Government to pay 4 per cent interest on all con- 
tributions, and the contributions never to exceed, in the case of those 
now in the service, 8 per cent of salary, the Government to provide 
the difference whenever such deduction is not sufficient to provide 
the annuity. (For the deductions from salary at various ages, see 
Table XI, p. 51 .) The total cost of such annuities, minus the amount 
contributed by the employees, would be the amount which the Gov- 
ernment would be required to contribute. The table following shows 
these three items. 



48 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

Table IX. — Showing the total maximum cost of retiring at age 70 all employees now in 
the classified civil service in the District of Columbia on annuities equal to one-half pay 
{maximum, ^600), maximum deduction from salary, tV per cent. 



Age. 


Total 

annuity 

payments. 


Total 

annuity 

payments 

provided by 

employees. 


Total 
appropria- 
tions. 1 


Ago. 


Total 

annuity 

payments. 


Total 

annuity 

payments 

provided by 

employees. 


Total 
appropria- 
tions.! 


95 


S440 

1,831 

2, 840 

2,743 

3,815 

8, 533 

12,829 

18,834 

19, 103 

45,987 

66,406 

96, 767 

120, 603 

150,596 

248, 374 

288,289 

377,877 

440, 793 

682, 419 

821,822 

870,826 

860,220 

908,883 

883,662 

663,069 




$440 

1,831 

2,840 

2, 743 

3,815 

8,533 

12,829 

18,834 

19, 103 

45, 987 

00, 400 

90, 707 

• 120,003 

150, 596 

248, 374 

288,289 

377,877 

440, 793 

682,419 

821,822 

861,711 

831,181 

850,791 

812, 279 

593, 635 


64 

03 


$699,769 
645, 381 
685, 290 
604, 578 
669, 234 


$91,910 
96,897 
124, 295 
127,394 
107.831 


$607, 853 


89 




548, 484 


88 




62 

61 

60 


560, 995 


87 




477, 184 


85 




501,403 


84 




59 


594,045 1 163,110 

721,096 1 227,740 

718,241 244,931 

729,886 277,896 

- 804,545 341,960 

. 799,299 j 302,722 

978,348 485,594 

988,731 ' 545,409 

1,011,781 618.021 


430, 92S 
493, 950 


83 




58 


82 




473,310 


81 




56.... 


451,990 


80 




55 

54 

53 

52 

51 

50 


462, 586 


79 




436, 578 


78 




492,754 
443, 322 


77 .. . 




76 .. ... 




393,760 


75 




915,718 
807, 145 
866, 990 
819, 300 
788, 195 
902, 360 
700,869 
764, 682 
656,828 
685, 733 
575, 422 


550, 412 
556, 588 
598,878 
579,828 
582,994 
709,016 
572,033 
646, 633 
572,463 
633,866 
563,528 


359,307 
310, 557 


74 




49... . 


73 




48.. 


268,112 


72 




47. . . 


2,39,471 
205, 201 


71 




46 


70 




45 . 


193,343 
128,836 


69 


$9, 115 
29,038 
52,092 
71,382 
70,034 


44 


68 


43 


118 049 


67 


42 


84, 305 


06 


41. 


51,867 


65 


40.. ' . . 


11,894 









1 For net cost to Ooverninenl after deducting future loss from superannuation, see Table X, p. 50. 



COST OF ESTABLISHING PROPOSED PLAN. 

The foregoing table shows merely the aggregate appropriations 
required of the Government during the next 50 years, distributed 
according to the present age of the employees who are to receive 
them, and takes no account of the saving that would result from the 
removal of the superannuated. In considering any plan of retire- 
ment it is but fair to consider not only the expense which the Gov- 
ernment must incur to establish the plan, but also the saving resulting 
from its establishment. The total appropriations given in the pre- 
ceding table are shown in the table that follows, distributed accorchng 
to amount required each year until the plan is finally self-supporting, 
and as an offset to these appropriations is given the loss that will 
result each year from sui)erannuation if no plan of retirement is 
established. In the last column of this table is shown the maximum 
annual cost over the loss from superannuation, or the actual cost of es- 



BEPOKT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 49 

tablishing the proposed plan. With each year, following the twentieth, 
the annual appropriation required for the plan will be less than the 
amount that the Government will lose through superannuation if no 
plan is adopted. The amounts prefixed by a minus sign ( — ) in the last 
column of the table are the annual and increasing gains to the Gov- 
ernment under the plan. At the end of 36 years the saving under 
the plan will exceed the amount advanced in excess of the loss from 
superannuation during the first 20 years. With each succeeding 
year the saving will increase, because the appropriation required will 
diminish, until finally, at the end of 50 years, the plan will be self- 
supporting and no further appropriations will be required. On the 
other hand, if no plan of retirement is adopted the loss from super- 
annuation will increase as long as the service continues to grow. 

It should be remembered also that the estimate of loss from super- 
annuation is based on the very conservative returns made by depart- 
ment chiefs, and the commission believes that in fact the loss from 
superannuation will equal the cost of the proposed plan in possibly 
8 or 10 years instead of in 20 years, and that the Government will have 
saved the entire cost of the plan in the course of 20 years instead of 
in 36 years. 



50 KEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



'J'ahi.e X. — Showirif/ (a) the maximum amount required to be appropriated by the Govern- 
ment to retire 22,7.'i4 employees nov) in the permanent classified civil service in the Dis- 
trict of Columbia on annuities equal to half pay (maximum, annuity, !f600), provided 
each employee belov) 70 years of age be required to deposit vnth the Government monthly 
such sum as will, with interest at 4 per cent, compounded annually, provide such annuity 
on reaching age 10, provided that no monthly deposit by any employee nov) in the service 
shall exceed 8 per cent of the monthly pay ('where such monthly deposit of 8 per cent, with 
Interest, 'mill not 'pnndde the required annuity, the Govern'm,ent to provide the difference); 
(b) the amount of salaries paid but not earned, that unndd, he saved if all employees 
•were -retired at age 70; and (c) the net cost to l,he Government of establishing the plan, 
and the gai;n to the Govern'rnent from its establishment. 



In years. 



0. 

1. 

I 

li. 

7. 

8. 

'.). 
10. 
II. 
12. 
I.}. 
\4. 
15. 
l(i. 
17. 
18. 
10. 
20. 
21. 
22. 
23. 
24. 
25. 



Ma.ximuiii 

annual 
appropria- 
tion. 



(a) 

•S4flS, 
522, 
.51)7, 
(110, 
r,4:i, 

(I-IS, 

0.51, 
040, 
042, 
020, 
014, 
593, 
580, 
.500, 
5.50, 
537, 
521, 
514, 
502, 
480, 
408, 
440, 
421, 
39(j, 
309, 
.■{(( 



577 
099 
838 
405 
525 
309 
058 
101 
085 
424 
837 
,015 



.\imual 
lo.ss from 
siip(,'ran- 
nuation if 
no plan of 
retirement 
is adopted. 



1228, 387 
253,019 
278,604 
303,163 
320,751 
332, 943 
342,297 
349, 270 
354,325 
357,967 
360,367 
362,970 
367,308 
370,481 
375,040 
381,338 
390,221 
403,111 
417,749 
432, 277 
444,267 
4.53,885 
403,181 
474,234 
489,358 
504,507 



Net annual 
oo.st over 
loss from 
superan- 
nuation 
(a)-(6). 



(c) 

!B240,573 
209, 497 
288,8.56 
307, 421 
323, 153 
315,229 
309, 006 
297, 025 
287, 802 
208,900 
2,53,810 
230, 594 
213, 049 
190,074 
175, .537 
1.5.5,701 
131,017 
111,3.54 
84, 770 
.54,092 
23, 791 

- 7, 724 

- 41,490 

- 77,810 
-119,521 
-159,892 



In years. 



20, 
27, 
28, 
29, 
30 
31 
32 
.33, 
34 
35 
.30 
37 
38 
.39 
40 
41 
42 
43 
44 
45 
4(1 
47 
48 
49 
50 



Maximum 

annual 
appropria- 
tion. 



(a) 

.«314, 

280, 

2.57, 

227, 

190, 

167, 

141, 

118, 

97, 

80, 

05, 

.52, 

41, 

32, 

24, 

18, 

1.3; 

10 

7, 



Annual 
loss from 

superan- 
nuation if 
no plan of 
retirement 
is adopted. 



(&) 
.15520,864 
542, 9.52 
.505, 615 
.580,885 
.592, 148 
606,004 
017,820 
027,915 
0.37,018 
045, 448 
051,041 



Net annual 
cost over 
loss from 
superan- 
nuation 
(a)- (6). 



(■) 



(c) 
-S206, 167 

- 256, .396 

- .308,109 

- .353,104 

- .395, .531 

- 438,050 

- 476, .555 

- 509,720 

- .539,074 

- .505,117 

- 586,486 



n 



• The increasing aimual loss that will take place if no plan of retirement is adopted can not be shown 
beyond the Ihirty-sixth year because of the large number of persons who will hereafter enter the service 
at ages above 34, and hence reach the age of 70 (from which age the loss is calculated) within the ne.xt 36 
years. 

2 The gain to the CJoverinnent from the establishment of the plan will continue to increase because the 
(iovcrninent will be relieved of the increasing burden of superannuation, while the appropriation required 
to put the plan into operation will diminish until finally at the end of .50 years it will cease. 

The rollowing table shows the deductions that are required at 
various ages to provide the annuities of half pay, with maxinium 
annuity of $600. The deductions are based on the Combined Experi- 
ence Table of Mortality and interest at 4 per cent, compounded 



REPORT TO THE PRESIDENT OX RETIREMENT ALLOWANCES. 



51 



annually, and are sufficient to permit (1) the return to an employee 
leaving the service prior to the age of retirement, of all contribu- 
tions with interest at 4 per cent, compounded annually; and (2) the 
return to the legal representatives of an employee dying after retire- 
ment, of any balance of the amount on hand at the date of retirement 
not paid in annuities. These rates are made possible by the use of 
4 per cent interest instead of 3^V per cent interest, and the elimination 
of optional settlements with retiring employees under which a selec- 
tion would be exercised against the Government, since employees in 
poor health would take cash and employees physically above the aver- 
age would take annuities. Under the proposed plan all employees 
remaining in the service to age 70 are required to take the one form 
of annuity settlement. 

Table XI. — Shoinng the nrnov/nt required to he deposited monthly from various ages to 
age 10 to 'provi/k an annuity payable cpxarterly during remainder of life (first payment 
in 3 months after reaching age 10), such annuity to egv/il hxilf pay (maximum, annuity, 
■ffjOO), v:ith provision for return at death of annuitant of halamx on deposit at date of 
retirem.ent and not thereafter paid in annuities. 



[Combined Experience Table of ifortality; interest at 4 per cent, compounded annually.] 




! 






?9.10 (purchase 






Monthly de- 










price of an an- 
nuity of %\ , 


Amount to 
which a de- 
posit of ?1 per 

month will 
accumulate at 
4 per cent in- 
terest com- 
pounded an- 
nually, in yearj 
shown in col- 
umn (c). 




duction Tad- 
justed to near- 


Age of 
retire- 
ment. 


Age of 
entrance 
to serv- 
ice. 


Years of 
service. 


Amount of 

annuity. 1 


payable fjuar- 
terly, first pay- 
ment in 3 
monthS; with 
jjrovLsion for 

return at 
death of bal- 


Monthly 

deduction 

from 

salary 

(e)Mf). 


est tenth of a 
dollar; from 
salary of em- 
ployee. (For 
employees in 
.service when 
law takes ef- 










ance of pur- 
chase price not 
paid in an- 




fect, maxinrium 
deduction lim- 












ited to 8 per 










nuitiesjXSeOO. 






centofsalarj'.;2 


<M> 


<h) 


(C) 


id) 


(c) 


(f) 


(g) 


(h) 


70 


20 


.50 


8600.00 


$5,m().()() 


?1,871.48 


2.917 


2.90 


70 


21 


49 


600.00 


.5, 460. Of) 


1,787.71 


3.0.54 


3. 10 


70 


22 


4S 


6fXJ. fXJ 


.5,460.00 


1,707.16 


3. 198 


3.2fJ 


70 


23 


47 


600. W 


.5.460.00 


1,629.72 


.3.3.50 


3.40 


70 


24 


46 


6fX). OfJ 


.5,460.00 


1,-5.55.25 


3. .Til 


.3.50 


70 


2.5 


4-5 


600. 00 


.5, 460. (JO 


1,483.64 


3.680 


3.70 


70 


26 


44 


600.00 


.5,460.W 


1,414.79 


3. 8.59 


3.90 


70 


27 


43 


600.00 


.5,460.(X) 


1,348. .59 


4.049 


4.00 


70 


28 


42 


600.00 


5,460.fX) 


1,284.94 


4.249 


4.20 


70 


29 


41 


600.00 


.5,4f;0.00 


1,223.73 


4.462 


4.50 


70 


30 


40 


600.00 


.5,460.00 


1,164.87 


4.687 


4.70 


70 


31 


39 


600.00 


.5,4(;0.00 


1,108.28 


4.927 


4.90 


70 


32 


38 


600.00 


5,460.00 


l,a53.87 


5. 181 


5. 20 


70 


.^3 


37 


600.00 


5,4f;0.00 


1,001. .5.5' 


.5.4.52 


5. 50 


70 


34 


36 


600.00 


5,460.00 


951. 24 


5. 740 


5. 70 


70 


3.5 


35 


600.00 


5,460.00 


902. 87 


6.047 


6.00 


70 


36 


34 


600. 00 


5,46fJ.OO 


%.56..36 


6.376 


6.40 


70 


37 


.33 


600.00 


5,46f).00 


811.63 


6. 727 


6.70 



1 For annual salaries of Sl,200 or less the aiinuity will be 50 per cent of salary 
81,200 the annuity will be $600. 

2 For aimual salaries of -«1 ,200 or less the figures shown in column (A) are per cents of salaries 
salaries above 81,200 the figures are dollars. 



For annual salaries above 



For annual 



52 KEPOKT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 



Table XI. — Showirifj the amount required to be deposited monthly from various ages to 
age 70 to provide an annuity payable quarterly during remainder of life, etc. — Con. 









" 


$9.10 (purchase 
price of an an- 


Amount to 
which a de- 
posit of .11 per 

mouth will 
accumulate at 
4 per cent in- 
terest com- 
pounded an- 
nually, in years 
shown in col- 
umn (c). 




Monthly de- 
duction (ad- 










nuity of m, 




justed to near- 


Age of 
retire- 
ment. 


Age of 
entrance 


Years of 


Amount of 


payal)le quar- 
terly, first pay- 
ment in 3 
months, with 


Monthly 

deduction 

from 

salary 

(c)-^(/). 


est tenth of a 
dollar) from 
salary of em- 
ployee. ( For 


to serv- 
ice. 


service. 


annuity.' 


provision for 

return at 
death of bal- 
ance of pur- 
chase price not 


employees in 
service when 
law takes ef- 
fect, maximum 
deduction lim- 










paid in an- 




ited to 8 per 










nuities) X $600. 






cent of salary. )2 


(a) 


(6) 


(0 


(d) 


ic) 


(/) 


(3) 


(ft) 


70 


38 


32 


$600. 00 


.15,460.00 


S768. 63 


7. 104 


7.10 


70 


39 


31 


000. 00 


5.400.00 


727. 28 


7.507 


7.50 


70 


40 


30 


000. 00 


5,400.00 


687.52 


7.942 


7.90 


70 


41 


29 


000. 00 


5,460.00 


649. 29 


8. 409 


8.40 


70 


42 


2S 


000. 00 


5,460.00 


612. 53 


8.914 


8.90 


70 


43 


27 


000. 00 


5,460.00 


577. 18 


9.460 


9.50 


70 


44 


20 


000. 00 


5,460.00 


543. 20 


10.052 


10.10 


70 


45 


25 


000. 00 


5,400.00 


510.52 


10. 695 


10.70 


70 


40 


24 


000. 00 


5,400.00 


479. 10 


11.396 


11.40 


70 


47 


23 


000. 00 


5,460.00 


448. 88 


12. 164 


12.20 


70 


4,S 


22 


000. 00 


5,460.00 


419.83 


13. 005 


13.00 


70 


49 


21 


000. 00 


5,400.00 


391. 90 


13. 932 


13.90 


70 


50 


20 


000. 00 


5,460.00 


305.04 


14. 957 


15.00 


70 


51 


19 


000. 00 


5,460.00 


339.21 


16.096 


16. 10 


70 


52 


IS 


000. 00 


5,460.00 


314. 38 


17. 368 


17.40 


70 


53 


17 


liOO. 00 


5,400.00 


290.50 


IS. 795 


18.80 


70 


54 


10 


000. 00 


5.460.00 


267.54 


20. 408 


20.40 


70 


55 


15 


000. 00 


5,460.00 


245.46 


22. 243 


22.20 


70 


5i; 


14 


000.00 


5,460.00 


224.23 


24. 350 


24.40 


70 


57 


13 


000.00 


5,460.00 


203.82 


26. 788 


26.80 


70 


58 


12 


000.00 


5,460.00 


184. 19 


29. 043 


29.60 


70 


59 


11 


000.00 


5,460.00 


165.32 


33.027 


33.00 


70 


00 


10 


000. 00 


5,460.00 


147. IS 


37. 097 


37.10 


70 


01 


9 


000. 00 


5,460.00 


129. 73 


42.087 


42.10 


70 


02 


8 


000.00 


5,460.00 


. 112.95 


48.340 


48.30 


70 


03 


7 


000. 00 


5,400.00 


96.82 


56.393 


56.40 


70 


04 





000. 00 


5,460.00 


81.31 


07. 150 


67.20 


70 


05 


5 


000. 00 


5,400.00 


60. 40 


82. 228 


82.20 


70 


00 


4 


000. 00 


5,460.00 


52. 00 


104. S79 


104. 90 


70 


07 


3 


000. 00 


5,4tU00 


38.27 


142. 070 


147. 70 


70 


OS 


2 


000. 00 


5,460.00 


25.01 


218.313 


218. 30 1 


70 


09 


1 


600.00 


5,460.00 


12. 20 


445. 351 


445.40 



' For aunuul salaries of $1,200 or less the annuity will be 50 per cent of salary. For annual sal iries 
above $1,200 the auniiity will be $600. 

= For annual salaries of 31,200 or less the figures shown in column (/i) are per cents of salaries. For 
annual salaries above $1,200 the figures are dollars. 

Recommendations of the Commission. 

' As a result of its invest igat ion, the eommission makes lour rec- 
ommendations . the first three referring respectively to those at the 
age of retirement when the plan goes into effect, to those remaining 
in the service after the })lan goes into effect, and to those who shall 
come into the service after the i>lan goes into etfect. The fourth 



KEPOKT TO THE PRESIDENT ON RETIEEMENT ALLOWANCES. 53 

recommendation merely limits the application of the plan for the 
present. The recommendations are given below with the reasons 
for each: 

(1) Every employee who is 70 years of age or over should be 
retired at once on an annuity paid from the Federal Treasury equal 
to half pay, the maximum annuity to be -1600. 

It has been shown that the age of 70 is the one most suitable as 
the general age of retirement for members of the civil service of the 
country. All employees at that age or over when a retirement plan 
goes into effect should be retired at once in order that the benefit to 
the service from the establishment of a retirement plan may begin 
at once. The improved efficiency of the service is desired now, not 
a generation hence. The Government must assume all liability for 
annuities payable to these employees, because there is no other way 
of retiring them. They can not provide for themselves at this late 
date, .and it would not be just to tax the younger emi)loyees for their 
benefit. Besides, the Government itself is the principal beneficiary 
from their retirement. 

(2) Every employee remaining in the service after the law takes 
effect should be required to lay aside monthly such sum as will, with 
interest at 4 per cent, compounded annually, provide an annuity of 
half pay on retirement at the age of retirement, the maximum annuity 
to be $600, such monthly deduction, however, to be in no case more 
than 8 per cent of the employee's salary, and in case the fund accumu- 
lated by the employee by this deduction is not sufficient to provide 
the annuity of half pay, with a maximum of $600, the Government 
should make up the difference between the sum so accumulated and 
the amount necessary to provide the annuity. In the case of em- 
ployees who retire before the age of 60, their contributions should 
be returned to them with the interest credited thereon in one sum. 
In the case of employees who retire after the age of 60 but before 
reaching the age of 70 years, their contributions when in excess of 
•1600 should be returned to them with the interest credited thereon 
in not less than 10 annual installments. In the case of employees 
who remain in the service to the age of 70, their contributions should 
be returned only in the form of an annuity with a payment at death 
of the difference between the amount on deposit at the date of 
retirement and the amount paid in annuities. 

The annuity has been limited to $600 a year because of the com- 
mission's belief that the only interest which the Government has in 
cooperating in the establishment of a retirement plan is to relieve 
itself from the inefficiency due to superannuation, which is at present 
causing it considerable loss and will inevitably cause it much greater 
loss as the number of its aged employees increases. The commission 
is of the opinion that, after the Government has protected itself 



54 KEPOET TO THE PRESIDENT ON EETIEEMENT ALLOWANCES. 

against this loss by making retirement at a given age compulsory 
mider conditions which make the destitution of the employee impos- 
sible (and such would be the case on an annuity of S600 a year), it 
has, on the one hand, little if any interest in compelling its employees 
to save money, and, on the other hand, a very questionable right to 
force those employees to make an investment which may be less 
profitable than some of them can themselves make. 

The per cent of deduction has been limited to 8 per cent of salary 
because the commission believes that any greater deduction would be 
very burdensome to many employees. 

The commission's reasons for recommending the three methods of 
settlement stated above, and only those three, at the various ages are: 
That employees retiring before reaching the age of 60 years are 
ordinarily fully capable of managing their own affairs, and if they 
should, through unwise investment or otherwise, lose their savings, 
they are still young enough to secure employment; that the amount to 
the credit of employees between the ages of 60 and 70 would be con- 
siderably larger than at the earlier ages, and its loss at those ages 
would probably be a far more serious matter than at an earlier age, 
and be more likely to result in an effort on the emplo3^ee's part to 
reenter the service; that the amount to the credit of employees retiring 
at age 70 should be paid only in the form of a life annuity, with return 
at death of any balance of deposit not received in annuities, (a) because 
cash settlements undoubtedly would, in many cases, result in the loss 
of the employee's savings through unwise investments, so that the 
employee would finally be worse off than if no plan of retirement had 
been provided; (b) because if a straight annuity were granted in 
which the employee forfeited his entire principal in case of death soon 
after entering on the annuity, great dissatisfaction would result among 
the families of employees who elected to take such settlements, and 
possibly claims might be presented to the Government for the refund 
of the money paid for such annuities, on the ground that the employee 
was incompetent at the time of making the selection; (c) because by 
requiring all employees 70 years of age to accept this settlement, the 
so-called ''selection" against the Government — through robust 
employees taking annuity settlements and employees in poor health 
taking cash — would be removed, and the rates charged the employees 
as a whole could safely be based on a mortality table that contem- 
plated a somewhat higher rate of mortality, and consequently a lower 
price fixed for the annuities. 

(3) Persons entering the service after the law takes eftect should 
be required to lay aside the full amount necessary, with interest at 4 
per cent, compounded annually, to provide their own annuities of 
half pay with a maximum of S600. The methods of settlement on 
retirement for this group of employees should be the same as for those 
employees already in the service as described in the preceding section. 



KEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 55 

To limit the deduction from the salary of a person entering the 
service after the law takes effect to 8 per cent would place a continu- 
ing burden on the Government, the amount of which could not be 
calculated in advance, and put a premium on old people entering the 
service. On the contrary, by limiting the aid from the Government 
to those already in the service now eligible for retirement and to those 
already in the service who can not provide the full annuity for them- 
selves before reaching the age of retirement, the total maximum cost 
to the Government can be definitely known in advance. The increas- 
ing deduction required with advancing age of entrance to the service 
would practically prohibit aged people from entering the service, and 
this is, the commission believes, as it should be. 

(4) This retirement plan should be restricted in the beginning to 
employees in the District of Columbia. 

As superannuation is very much greater in the District than it is 
outside the District, the need of a retirem.ent plan is much more urgent 
there than elsewhere. The statistics collected by the commission 
show that of the 22,754 employees in the classified service in the 
District of Columbia on November 1, 1911, 2,024 were 65 years of age 
or over, or a little less than 1 in 11. Employees 70 years of age or 
over numbered 951 . Aside from the fact that a retirement law is more 
needed in the District of Columbia than elsewhere, the advisability of 
thus restricting the plan at the outset is urged on the ground that it is 
desirable to proceed slowly in the inauguration of new measures. If 
the operation of the system adopted proves to be successful, it will be 
comparatively easy to extend its application, with such modification 
in detail as may seem desirable, to the Government service as a whole. 

The commission believes that the proposed savings and annuity 
plan meets all the objections that may be brought against it, and that 
the cost of establishing it is kept within the sum which, it has been 
shown in the course of this investigation, the Government will have 
to lose in the next 36 years through superannuation if no plan is 
adopted. In 20 years the annual loss from superannuation, which is 
an increasing amount, will equal the annual cost of establishing the 
retirement plan, which is a decreasing amount. In the last 16 years 
of that 36-year period the saving to the Government will equal the 
cost in the first 20 years. 

The commission presents as a result otits investigation the draft 
of a bill based on the same fundamental principles set forth in the 
preceding recommendations : 

Draft op a Bill for the Retirement of Employees in the Civil Service in 
THE District op Columbia. 

Section 1. That beginning with the first day of July next following the passage of 
this act there shall be deducted and withheld from the monthly salary, pay, or com- 
pensation of every officer or employee of the United States to whom this act applies 



56 EEPOET TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 

an amount computed to the nearest tenth of a dollar that will be sufficient, with interest 
thereon at four per centum per annum, compounded annually, to purchase from the 
United States, under the provisions of this act, an annuity, payable quarterly through- 
out life, for every such employee on arrival at the age of retirement, as hereinafter 
provided. The deductions herein provided for shall, in the case of employees who 
are in the service of the Government at the time this act goes into effect, not exceed 
eight per centum of the said salary, pay, or compensation; and shall be based on 
such annuity table as the Secretary of the Treasury may direct, and interest at the 
rate of four per centum per annum, compounded annually, and shall be varied to 
correspond to any change in the rate of salary, pay, or compensation of the employee. 

Sec. 2. That the amount so deducted and withheld from the salary, pay, or com- 
pensation of Svery employee to whom this act applies shall be deposited in the Treas- 
ury of the United States and shall be credited, together with interest at four per centum 
per annum, compounded annually, to an individual account of the employee from 
whose salary, pay, or compensation the deduction is made, and the Secretary of the 
Treasury is hereby directed to invest and reinvest such funds or any portion of such 
funds in any of the following securities, viz: Bonds of the United States, bonds or 
other interest-bearing obligations of any State of the United States or any legally 
authorized bonds issued for municipal purposes by any city or town which has 
been in existence as a city or town for a period of twenty-five years, and which for 
a period of ten years previous to such investment has not defaulted in the payment 
of any part of either principal or interest of any funded debt authorized to be con- 
tracted by it, and which has at such date more than 25,000 inhabitants as established 
by the last national census and whose net indebtedness does not exceed five per 
centum of the valuation of the taxable property therein, to be ascertained by the last 
preceding valuation of the property for the assessment of taxes; or any legally author- 
ized bonds issued for municipal purposes by any city or town in the United States 
which has been in existence as a city or town for a period of twenty-five years, and 
which for a period of ten years previous to such investment has not defaulted in the 
payment of any part of either principal or interest on any funded debt authorized to 
be contracted by it, and which has at such date more than 200,000 inhabitants as 
established by the last national census, and whose net indebtedness does not exceed 
seven per centum of the valuation of the taxable property therein, to be ascertained 
by the last preceding valuation for the assessment of taxes. In this clause the 
words "net indebtedness" mean the indebtedness of any city or town, omitting 
debts created for supplying the inhabitants with water and debts created in antici- 
pation of taxes to be paid within one year and deducting the amount of sinking 
funds available for the payment of the indebtedness included. 

The moneys deducted from salaries and the income derived therefrom shall be held 
and invested, as above described, by the Secretary of the Treasury until paid, as is 
hereafter provided. Any deficiency in the fund hereby created to carry out the pro- 
visions of this act shall be paid out of any money in the Treasury not otherwise 
appropriated. 

For the purpose of aiding the Secretary of the Treasury in investing the funds 
created by this act, a board of investment is hereby created, composed of the Treasurer 
of the United States, the Comptroller of the Currency, the person appointed by the 
Secretary of the Treasury to enforce, under his direction, the provisions of this act, 
and two persons to be designated by the President from among the employees of the 
classified civil service. The members of the board of investment shall be sworn and 
shall hold office until others are appointed and qualified in their stead. 

Sec. 3. That the retirement age herein referred to shall be seventy years, and that 
after this act takes effect no employee to whom it applies shall be permitted to remain 
in the service of the United States after attaining the age of retirement. 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 57 

Sec. 4. That upon absolute separation from the classified civil service covered by 
this act prior to the age of sixty years, and only upon such separation, the employee 
may withdraw his savings in one sum, together with interest at four per centum per 
annum, compounded annually, then credited to his account, as hereinbefore provided. 
In case of the death of an employee while in the service, the amount of his savings, 
together with the interest then credited thereon, shall be paid to his legal repre- 
sentatives. 

Sec. 5. That upon separation from the classified civil service prior to the retirement 
age, but after reaching the age of sixty years, the employee shall be entitled to receive 
the amount of his savings, including the interest credited thereon, in one payment, 
but if the amount exceeds six hundred dollars payment shall be made in ten annual 
installments, the first (to be paid one year after separation) being one-tenth, with 
one year's interest at four per centum per annum, and each installment thereafter 
being one-tenth and interest at the same rate for the preceding year on the balance to 
his credit at the beginning of the year. In case of the death of an employee so sepa- 
rated from the service, the amount of his savings, together with the interest then 
credited thereon, shall be paid to his legal representatives. 

Sec. 6. That in case of reinstatement in the classified civil service any person 
who at the time of his separation therefrom received a refund under section 
four of this act shall for the purposes of this act be deemed to be a new entrant to 
the service and the monthly deduction from his salary shall be computed from the 
date of such reinstatement, unless he shall within ninety days after reinstatement 
pay to the Treasurer of the United States the amount refunded to him, with interest 
at four per centum per annum, compounded annually, in which case the same shall 
be placed to the credit of his account and the former period of service shall be counted. 

Sec. 7. That beginning with the first day of July next following the piissage of this 
act every employee to whom this act applies who, at that time, shall have reached 
the retirement age shall be retired from the service and shall receive from the United 
States during the remainder of his life an annuity (payable quarterly) equal to one- 
half of the average annual salary, pay, or compensation received during the five 
years immediately preceding the taking effect of this act, such annuity not to exceed 
a maxinium of six hundred dollars and to cease and determine at his death. 

Sec. 8. That beginning with the first day of July next following the passage of this 
act every employee who shall remain in the service to which this act applies shall, 
on reaching the retirement age, be retired from the service and shall receive such 
annuity, payable quarterly, as can be purchased from the United States with the de- 
ductions theretofore made from his salary, pay, or compensation, and the interest 
credited thereon as heretofore provided; and in case such annuity is less than one- 
half of his average annual pay during his entire period of service, an annuity equal 
to the difference between such annuity purchased from the United States and an 
annuity equal to one-half of his average annual salary, pay, or compensation during 
his entire period of service shall be paid to him by the United States during the 
remainder of his life, but the one annuity or the sum of the two in no case to exceed 
six hundred dollars. On the death of a person receiving an annuity under the 
provisions of this section the annuities shall cease and determine; provided, that in 
case he shall not have received in annuities sums equal to the amount of the de- 
ductions from his salary, pay, or compensation, with interest as hereinbefore pro- 
vided, the United States shall pay to his legal representatives the balance remaining 
to his credit. 

Sec. 9. That every employee to whom this act applies who shall enter the service 
of the United States after the first day of July next following the passage of this act 
shall, upon reaching the age of retirement, be retired from the service and shall receive 
from the United States during the remainder of his life an annuity, payable quarterly, 
equal to one-half of his average annual salary, pay, or compensation which he shall 
42245— H. Doc. 732, 62-2 5 



58 EEPORT TO THE PRESIDENT ON EETIEEMENT ALLOWANCES. 

have received during his entire period of service, such annuity not to exceed a 
maximum of six hundred dollars. In case of the death of such an employee prior 
-to the payment to him in annuities of sums equal to the amount of the deductions 
from his salary, pay, or compensation, with interest as hereinbefore provided, the 
United States shall pay to his legal representatives the balance remaining to his 
credit. 

Sec. 10. That every employee to whom this act applies who shall continue in the 
classified service after the passage of this act, as well as every person to whom this act 
applies who may hereafter be appointed to a position or place, shall be deemed to 
consent and agree to the deductions made and provided for herein and shall receipt 
in full for the salary, pay, or compensation which may be paid monthly or at any 
other time, and such payment shall be a full and complete discharge and acquittance 
of all claims and demands whatsoever for all services rendered by such person during 
the period covered by such payment, except his claim for the benefits to which he may 
^be entitled under the provisions of this act, notwithstanding the provisions of sections 
one hundred and sixty-seven, one hundred and sixty-eight, and one hundred and 
sixty-nine of the Revised Statutes of the United States and of any other law, rule, or 
regulation affecting the salary, pay, or compensation of any person or persons employed 
in the classified civil service to whom this act applies. 

Sec. 11. That the Secretary of the Treasury shall prepare and keep all needful 
tables, records, and accounts required for carrying out the provisions of this act. The 
records to be kept shall include data showing the mortality experience of the employ- 
ees in the service to which this act applies and the rate of withdrawal from such 
service, and any other information pertaining to such service that may be of value and 
may serve as a guide for future valuations and adjustments of the plan for the retire- 
ment of employees. The Secretary of the Treasury shall make a detailed comparative 
report annually to Congress showing all receipts and disbursements under the provi- 
sions of this act, together with the total number of persons receiving annuities and 
the amounts paid them. 

Sec. 12. That the provisions of this act shall apply only to persons in the classified 
civil service in the executive departments and independent Government establish- 
ments in the District of Columbia whose salary, pay, or compensation is paid from 
moneys of the United States. No person serving in a position excepted from exami- 
nation as defined in the civil-service rules shall be included within the provisions of 
this act. WTaenever any person becomes separated from the classified civil service 
by reason of appointment in the unclassified service, such separation shall operate 
to take him out of the provisions of this act, except as to payment of any amount 
that may be due him. The President shall have power, in his discretion, to exclude 
from the operation of this act any group of employees whose tenure of office is inter- 
mittent or of uncertain duration. 

Sec. 13. That none of the moneys mentioned in this act shall be assignable, either 
in law or equity, or be subject to execution or levy by attachment, garnishment, or 
other legal process; nor shall any moneys paid to any employee, or to the legal repre- 
sentatives of a deceased employee, be subject to the payment of the debts of such 
employee. 

Sec 14. That for the clerical and other service and all other expenses necessary in 
carrying out the provisions of this act during the fiscal year nineteen hundred and 
, including salaries and rent in the District of Columbia, there is hereby appro- 
priated the sum of twenty thousand dollars, out of any money in the Treasury not 
otherwise appropriated. No officer or employee receiving a regular salary or com- 
pensation from the Government shall receive any additional salary or compensation 
for any service rendered in connection with the system of retiring employees pro- 
vided for by this act. 



REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 59 

Sec. 15. That the Secretary of the Treasury is hereby authorized to perform or 
■cause to be performed any or all acts, and to make such rules and regulations as may be 
necessary and proper for the purpose of carrying the provisions of this act into full force 
and effect; and his decision as to the amount to be deducted, the amount of interest 
to be credited, the amount of an annuity or refund to be paid, in any case, shall be 
final and conclusive, and shall not be subject to review by any other officer or 
authority. 

Appendixes. 

The commission has not undertaken to discuss the actuarial prin- 
ciples involved in the statistics presented for the reason that they 
are fully set forth in Senate Document No. 745 (61st Cong., 3d sess.), 
entitled " Savings and Annuity Plan Proposed for Retirement of Super- 
annuated Civil Service Employees/' and it was thought better to 
-attach that document as an appendix to this report. (Appendix A.) 

The commission has not undertaken to review in its report the 
history of other countries in retiring civil employees. The expe- 
rience of England and two of its principal colonies in retiring their 
civil employees has been fully discussed in Senate Document No. 
290 (61st Cong., 2d sess.), entitled '' Civil Service Retirement, Great 
Britain and New Zealand," and Senate Document No. 420 (61st 
Cong., 2d sess.), entitled ''Civil Service Retirement, New South 
Wales, Australia." It was thought better to attach these docu- 
ments as appendixes rather than to repeat their substance in the 
body of the commission's report. (Appendixes B and C.) 

The commission has not undertaken to discuss in detail the vari- 
ous bills presented to Congress for the retirement of civil employees. 
Copies of House bill 9242, House bill 19399, and Senate bill 5863, 
all of the Sixty-second Congress, are, however, attached to this 
report. These bills, together with the bills set forth in Senate Docu- 
ment No. 745, above referred to — namely, bills known as the Perkins 
bill, Gillett bill, and the Austin bill — comprise the most important 
bills that have been before Congress relative to the subject of retire- 
ment allowances. (Appendix D.) 

The commission attaches to this report a copy of the schedule 
which it prepared and distributed through the offices of the civil 
service in the District of Columbia, calling for information with 
regard to each employee. It is the information collected on the 
22,754 schedules returned by the departments and independent 
Government establishments which formed the basis of the calcula- 
tion as to the amount of loss sustained by the Government through 
the inefficiency of its aged employees. (Appendix E.) 

Respectfully submitted. 

F. A. Cleveland, Chairman. 

W. F. WiLLOUGHBY. 

W. W. Warwick. 
Frank J. Goodnow. 
M. O. Chance, Secretary. 



APPENDIX A. 



(Senate Document No. 745, 61st Congress, 3ci Session.) 



SAVINGS AND ANNUITY PLAN PROPOSED FOR RETIREMENT OF 
SUPERANNUATED CIVIL-SERVICE EMPLOYEES 

BY 

HERBERT D. BROWN. 



AUTHOE^S ]^OTE. 



The principles of the retirement plan discussed in this report with 
illustrative tables for representative ages were worked out by the 
author in 1903 and presented in 1905 to the chairmen of the Senate 
and the House Committees on Appropriations and the chairmen of 
the Senate and the House Committees on Civil Service for their 
consideration. Since then, elaborate statistical data have been col- 
lected by the Bureau of the Census, on which the tables given in the 
report are based. i 

The author feels that it is not improper to state that the prepara- 
tion of the tables in this report has required an enormous amount of 
labor such as has never been undertaken, so far as he is informed, in 
connection with any plan considered by any foreign Government. 

Much space is given to what may be considered by some persons 
as unnecessary discussion of elementary principles. In the opinion 
of the author, however, this seems to be necessary, since questions 
frequently asked him concerning the plan indicate that many people 
interested in the subject are, however, not familiar with those prin- 
ciples. 

The author desires to express his gratitude to Benedict D. Flynn, 

F. A. S., for reading the proof of this report and for making valuable 

suggestions; to Hon. George E. Roberts, Director of the Mint, for 

reading the proof of the chapter on investments; and to Frank J. F. 

Thiel, Esq., secretary to the Treasurer of the United States, for 

assistance in collecting the statistics contained in the same chapter. 

The author wishes also to give credit to Harriet Connor Brown for 

valuable assistance in the preparation of the report. 

Herbert D. Brown. 

Washington, D. C, May '£1, 1911. 

3 



TABLE OF OOT^TEISTTS. 



Introduction. 

Page. 

Need of plan for retiring superannuated civil employees 11 

Lack of plan works injustice to aged employees 12 

Lack of plan means pecuniary loss to Government 13 

Lack of plan prevents promotion of younger employees 14 

Need of retirement measure expressed by administrative officialp 14 

Numerous retirement bills introduced into Congress 27 

Plan embodied in Perkins (S. 1944) and Gillett (H. R. 22013) and Austin 

(H. R. 729) bills and here proposed 27 

Cost of putting proposed plan into operation 31 

How this cost may be met 34 

Difference between Perkins and Gillett bills 35 

Statistical data contained in this report 35 

Chapter I.— Principles Underlying Proposed Plan. 

Four fundamental principles 37 

Criticism of plans previously proposed : either civil pensions or flat- rate assess- 
ment plans 38 

Civil pension unpopular and unsound 38 

Civil pension is expensive 39 

Cost of civil pension in England .' 40 

Abuses to which pension supported wholly or in part from Public 

Treasury is liable which make it costly 43 

Gratuities to employees leaving before retirement age 43 

Compassionate allowances to dependents 44 

Pensions increased on account of professional qualifications 44 

Retirement on abolition terms 45 

Abuse of abolition terms in England 45 

Abuse of abolition terms in Canada 45 

Abuse of abolition terms in New South Wales 46 

Probable least cost of civil pension in United States 48 

Table I. — Showing comparative cost to the Government during 
first 35 years of retiring employees on straight pensions and 

under the Perkins bill (S. 1944) 48-49 

Table II. — Showing comparative cost to the Government during 
fiirst 35 years of retiring employees on straight pensions and 

under the Gillett bill (H. R. 22013).. 50-51 

Chart showing comparative cost to the Government during the first 35 years 
of savings and annuity plan embodied in the Perkins and Gillett bills and 
a pension giving the same benefits as the Perkins bill, but wholly at Gov- 
ernment expense 52 

Difference between civil and military pension 53 

Civil pension is demoralizing to the service 54 

Difference between effect of civil pension in Government service and 

private business - 56 

Civil pension means wages below market price 58 

Experience of England proves civil pension is ' ' deferred pay " 59 

5 



6 CONTENTS. 

Pafie. 

Rul)H(il-iil.<i |)ln.ii a, form of civil pcMi^'ion 61 

Flat-ral.d iiasoHHriKMil piiiiiH iii<u|iii table 62 

IncHiiiilahlc if amiiiil-ioH arc basod on length of sorvioc 63 

Table III.— Showing the annuity which a deduction of $5 a month during 

variouH periods of Borvice will provide on rotiremont at ago 70 64 

Inequitable if annuities are uniform, regardless of length of service 64 

Table IV.- Showing amount required to be deducted from a monthly sal- 
ary of $100 (per cent of other salaries) during various periods of service, 

to provide an annuity of $900 a yc^ar beginning at ago 70 65 

Actuarial dillicultioH of plann bawul on (lat-rato aaHosHinontH 65 

Statonients of actuaricis agaiimt Mat-rate aHH(iH.sment plans 60 

History of llat-rato aHHOssment i)la.ns a warning 00 

Flat-rate assossmont plan unsatisfactory in lOnghuul 67 

Flat-rate assessment ])lan unsatisfactory in Australia 08 

Flat-rate assessment plan unsatisfactory in Canada 69 

Flat-rate assessment iilan unsatisfactory in Franco 70 

Savings and annuity plan based on adequate individual contributions the ideal 

plan 71 

Savings-l)ank plan approved by well-known actuaries 71 

Savings-bank plan proposed for Franco 73 

Roasona for failure of savings-bank plan in Canada and New Zealand 74 

Assossmonts on salary should be based on ago of entrance into service 75 

Two important principles observed in Perkins, Gillett, and Austin bills... 76 

Payment of a liberal rate of interest the Government's best contribution... 77 
Savings and annuity plan similar to that hero proposed adopted by English 

fraternal organi/,a( ion 79 

Advantages of proposed plan 81 

Chatter If.- MATUiatAncM, Hasih ov ritoi'osEP Plan. 

Annuity the central idea of this plan 85 

Value of annuity determined by moans of mortality tables and interest tables. . 86 
Four steps in discussion: Mortality tables; interest; annuities; deductions from 

salaries 86 

Mortality tables 87 

Construction of mortality tables 88 

Early Ronnin tables 90 

Early German tables 90 

Early English tabl(>s 91 

NortJiampton Table 91 

Carlisle Table 91 

Mortality tables based on life insurance oxporionce 91 

Recent English Government tables 92 

Combined or Actuaries' tublo 92 

Actuaries' 11™ and 11' tables 93 

American Experience Table 93 

Rritish Ollices' tables 94 

Tables used in preparing this plan 94 

Reasons for using Ihilish Ollicos' Select Annuitants' Mortality Table 

as the basis for annuity rates under Part I of plan 95 

Table V. — Showing number living at all ages under various tables of 

mortality 96 

Table VI. — Showing expectation of life at all ages under various tables 

of n\ortality 97 



CONTENTS. 7 

Page. 
Mortality tables — Continued. 

Tables used in preparing this plan — Continued. 

Reasons lor using Ainoricaa Exporionce Table of Mortality in first st(;p 

of dotcirmining cost of annuities for hack services 98 

Table VII. — Showing probability of living from various ages to age of 

70, according to different tables of mortalily 99 

Reasons for usiJig Combined or Actuaries' Talde of Mortality in last 

step of determining cost of annuities for hack services 99 

Interest 100 

Simple interest and compound interest 1 00 

Cumulative power of compound interest J 00 

Table VIII. — Showing percentage of annuity contributed by (!rii])h)y(!e 

and percentage gained through increment of interest 101 

Table IX. — Showing amount returned to the employee in cash after 

various periods of service for each dollar deposited 101 

Chart showing the amount of a deposit of $1 per annum at various nitos 

of interest 102 

Table X. — Showing the amount of a dtsposit of $1 per annum at vari- 
ous rates of interest 103 

Rate of interest 103 

Rate of 3i per cent proposed 104 

Objection to low-interest rate 104 

Advantage of low-interest rate 105 

Table XI.^ — Showing the value of an annuity of $1 at various ages, 
based on the British Offices' Select Annuitants' experience!, with dif- 
ferent rates of interest, annuity payable quarterly J06 

Annuities 106 

Annuity, 1^ per cent of aggregate salary 106 

Annuity of 1 or 2 per cent of aggregate salary possible but not advisable. . 107 
Table XII. — Showing differences in practicability of several bases of 
computation for annuities, 1, IJ, and 2 par c(;nt of annual salary 

for each year of service ] 08 

Two forms of annuities granted 108 

Table XIII. — Showing amount of annuity granted for a given sum of 

money under option I and option II of the hill 109 

Advisability of cash settlement as well as annuity settlement 109 

Annuity rates used in proposed plan 112 

Table XIV. — Showing how the value of an annuity is determined 112 

Present value of an annuity of $1, for a male, beginning at age 70 113 

Illustration 113 

Present value of an annuity of $1, for a female, beginning at age 70. . . 114 
Table XV. — Showing the present value of a life annuity of $1, for 
males and females, payable quarterly, beginning at various ages, 

first payment in three months after purchase 115 

These rates conservative, as shown by comparison with Canadian Govern- 
ment rates 115 

Table XVI. — Showing immediate annuity rates of Canadian Govern- 
ment, annuities payable quarterly, first installment three months 

after purchase 116 

Influence of longevity on annuity rates 116 

Table XVII.- — Showing the deaths in the registration area per 1,000 of 
population in 1890 and 1900, and the decreases and increases in the 

rates 118 

A life annuity is the converse of a life policy 119 



8 CONTENTS. 

Page. 

Deductions from salaries 120 

IIow to determine the amount of deductions from salaries 121 

Table XVIII. — Showing the amount to which a deposit of |1 a month 
(first payment immediate) will accumulate at 3 J per cent per annum 

compound interest at the end of a given term of years 121 

Table XIX. — Showing amount required to be deducted from a 
monthly salary of $100 (per cent of other salaries) to provide an 
annuity at age 70 equal to 1^ per cent of annual salary for each year 

of service - 122 

Percentage of salary deducted varies with retirement age 123 

Table XX. ^ — Showing per cent required to be deducted from a 
monthly salary of $100 (per cent of other salaries) to provide an 
annuity at age 65 eqiial to 1^^ per cent of annual salary for each year 

of service 124 

Table XXI. — Showing per cent required to be deducted from a 
monthly salary of |100 (per cent of other salaries) to provide an an- 
nuity at age 60 equal to 1^ per cent of annual salary for each year of 

service 125 

Percentage of salary deducted varies with entrance age, but not with salary. 125 
Table XXII.— Showing amount of cash accumulation at end of various 
years of service payable to employee on resignation or to his legal 
heirs in case of death; and life annuity that may be granted on 

resignation in lieu of cash 126 

Amount of deduction from salary varies only with change in salary 127 

Table XXIII. — Showing how deductions from salaries may be adjusted 

to correspond to promotions 128 

Average rate of deduction from salary only 5 per cent 129 

Advantage to the service of increasing deduction with increase of entrance 
age 130 

Chapter III. — Minor Provisions of the Proposed Bill. 

Provisions for separation from the service 131 

In case of retirement because of superannuation 131 

Ages of retirement, according to severity of occupation 132 

Modes of procedure for retirement 132 

Continuance in service after retirement age 135 

Various options on retirement 135 

In case of resignation , 136 

Interest allowed on savings after six years' service 136 

Annuity on separation from service before retirement age in case sav- 
ings amount to $1,000 137 

In case of dismissal 137 

Superiority of this plan over civil pension illustrated 137 

In case of death 140 

In case of disability 140 

Disability provision in so-called Keep bill 141 

Necessity of determining cost of disability benefit 141 

Difficulty of determining cost of disability benefit 141 

German disability experience best available 142 

Table XXIV. — Showing rates based on German disability experience 
to provide an annuity of $1 (first payment immediate) to age of retire- 
ment upon occurrence of total and permanent disability 143 

Estimated cost of diaability provision in so-called Keep bill 143 



CONTENTS. 9 

Page. 
Provisions for separation from the service — Continued. 
In case of disability — Continued. 

Table XXV. — Showing cost of limited disability provision in Keep bill. 144 

One-year term rates used in calculation 145 

How cost of disability provision can be met 145 

Desirability of more liberal disability benefits 146 

Estimated cost of liberal disability benefits 147 

Table XXVI . — Showing cost of a liberal disability provision 148 

Separate records should be kept of superannuation and disability 149 

Disability clause in proposed bill 150 

Provision for reinstatement in service 152 

Provision for payment of annuities for back services 153 

Miscellaneous provisions of the proposed bill 153 

Provision for keeping statistical records 153 

Provision limiting operation of plan to District of Columbia 154 

Provision making moneys under the act nonassignable and nonattachable. 154 

Provision for cost of administering the plan 154 

Enacting clause 154 

Chapter IV.— Cost op Plan. 

Cost of putting plan into operation under Perkins bill 155 

Experience of New Zealand 156 

Cost dependent on number of employees included 157 

Two calculations of maximum cost of putting plan into operation for entire 

classified service 159 

The first calculation 159 

Table XXVII. — Showing maximum cost of annuities for back services 
for 103,030 employees, based on census of employees as of June 30, 

1903 159 

The second calculation 159 

Table XXVIII. — Showing maximum cost of annuities for back serv- 
ices for 170,228 employees, based on census of employees as of June 

30, 1907, under Perkins bill 160 

Method followed in preparing tables of cost 161 

Tables XXIX and XXX. — Showing the method by which the data 

were drawn off and the percentages of salaries determined 162-165 

Comparison of two calculations shows agreement 166 

Greater number of employees included in last calculation 166 

Classes excluded from first calculation 168 

Classes excluded from second calculation 168 

Earlier retirement ages in last calculation 169 

Test of accvuacy of two calculations 169 

Probable cost much less than maximum 170 

Because calculation makes no allowance for resignations 171 

Because calculation is based on present salaries instead of average 

salaries 172 

Because calculation makes no allowance for retention in service past 

age of retirement 172 

Calculation includes payment on back services to all present mem- 
bers of service 173 

Cost of putting plan into operation under Gillett bill 173 

Comparison of cost of Perkins and Gillett bills 174 

Table XXXI. — Showing comparative cost to the Government of establish- 
ing plan for retiring employees under terms of Perkins and Gillett bills. 174-176 



10 CONTENTS. 

Cost of putting plan into operation under Gillett bill — Continued. Page. 

Chart showing comparative cost to the Government of establishing the 

savings and annuity plan embodied in the Perkins and Gillett bills 177 

Table XXXII. — Showing by classes the per cent of employees whose annui- 
ties would be reduced by the $600 limit provided by the Gillett bill .... 178 
Calculation of maximum cost of putting Perkins bill into effect for classified 

service in District of Columbia 178 

Table XXXIII. — Showing estimate of maximum cost the first year of 

annuities - 178 

How the cost of putting the plan into operation may be met 179 

Plan can be put into operation without additional appropriation by the 

Government 180 

Cost of administering the plan 185 

Chapter V. — Provisions for Investment of Retirement Fund. 

Two provisions for investment of fund 189 

Not feasible at present to deposit fund in savings banks 189 

Differences between eastern and western savings banks 190 

Investment of fund should be restricted to public securities 191 

Savings-bank investments 191 

Table XXXIV. — Showing savings banks in the Commonwealth of Massa- 
chusetts placed in the hands of receivers from 1834 to October 31, 1906, 

which have not resumed business 193 

Public bonds safe in vestments 194 

Federal bonds 194 

Various issues of Federal bonds 194 

Table XXXV.- — Shomng principal outstanding bonds of the United States. 195 

Federal bonds now issued to pay for public works 196 

Federal bonds safest of investments 196 

Rate of interest on Federal bonds low 196 

Federal bonds attractive to life insurance companies during war 197 

State bonds 198 

State bonds now safe holdings 198 

Rate of interest on State bonds not high 199 

Municipal bonds 199 

Large investments in municipal bonds 200 

Table XXXVII. — Showing population living in cities at each decade 200 

Table XXXVIII. — Showing purposes of municipal bond issues 201 

Character of municipal bonds acceptable 201 

Bonds of small municipalities 201 

"Net indebtedness" defined 203 

Essential points in considering safety of municipal bonds 203 

Rate of interest on municipal bonds 204 

Probable future course of rate of interest 204 

Appendixes. 

Appendix A. Text of Perkins bill (S. 1944, Sixty-first CongTOss, first session). . 210 
Appendix B. Text of Gillett bill (H. R. 22013, Sixty-first Congress, second 

session) 215 

Appendix C. Text of Austin Bill (H. R. 729, Sixty -second Congress, first 

session) 220 



SAVINGS AND ANNUITY PLAN PROPOSED FOR RETIREMENT OF 
SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 



INTRODUCTION. 

The civil-service law has now been in operation over a quarter of 
a century. Passed by a Republican Congress, it was sternly upheld 
by a Democratic President. The best men of both parties have been 
its disinterested supporters. Its beneficent effects have been felt 
throughout the public service and few will be found to dispute them. 

NEED OF PLAN TOR RETIRING SUPERANNUATED CPV^IL EMPLOYEES. 

There is one problem of the service, however, that the law has not 
solved, and that is the problem of superannuation. Without provi- 
sion for retirement of the aged officeholder a law which in practical 
operation insures him a permanent tenure of office works an injustice 
to the Government, since it permits the retention in the service of 
many who have outlived their usefulness. It is true that the law 
does specifically provide for the removal of the incompetent on the 
proper record of the existence of incompetency, but such a provision 
has proved to be inadequate where incompetency is the result of old 
age. That part of the law is practically a dead letter, as is acknowl- 
edged in the following paragraph found in the Nineteenth Report of 
the Civil Service Commission: 

It has been urged by opponents of the competitive system that that system, 
by securing comparative permanence of tenure, tends to promote superannuation 
in the public service. The commission calls attention to the fact that the civil- 
service law itself provides for no permanency of tenure. Under it any employee 
can be dismissed at any time. The successor of such employee, however, is no 
longer appointed through personal or political favor, and thus the civil-service 
act has taken away the motive for making arbitrary removals. To this extent 
the act has promoted permanency, and a very much smaller proportion of per- 
sons are removed from the competitive classified service than from other parts 
of the service. In order to secure justice in making such removals it \^as 
further provided by Executive order that the appointing officer must give his 
reasons, with proper notice and an opportunity for answer, to the person pro- 
posed to be removed, and that removals should only be made for such reasons 
as would promote the efficiency of the service. It is evident that under this 
rule, rigidly enforced, no person ought to be retained in the public service whose 

11 



12 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

dismissal is required In the interests of good administration. But it is also 
true that from humane considerations appointing officers will be reluctant to 
dismiss tliose who have become superannuated or otherwise incapacitated where 
hardshii) is entailed upon the person so removed, and especially in cases where 
the (Muployee in question has served the Government faithfully for years 
(p. 25). 

Such wei«>ht have these humane considerations that even the most 
tiincerc and active advocates of the competitive system have found it 
difficult to take advantage of the hiw in order to dismiss superan- 
nuated or disabkHl employees from office, and the introduction of 
modern business methods in the departments has in consequence been 
retarded. The majority of executive officials are undoubtedly too 
tender-hen ried to dismiss a subordinate whose only faults are attrib- 
utable to his weight of years. The result is that he is allowed to 
remain, quite unfit to perform all his duties, practically a pensioner, 
and the work he is unable to do is divided among the younger clerks. 
The consequence is that injustice is done the aged clerk, the service, 
and all clerks in the same office who are rated below the aged incom- 
petent. 

LACK OF PLAN WORKS INJUSTICE TO AGED EMPLOYKES. 

In the first place, the aged clerk suffers humiliation of spirit and 
discomfort of body that it ill becomes a great nation to put upon 
faithful employo^es. Pitiful cases of old employees who go to office 
long after their days of usefulness have passed are numerous and well 
known, for 1 out of every 14 Government employees in the city of 
Washington is over 65 years of age. Many of them are past 80, and 
nonagenarians have occasionally been on the Government pay roll. 
Paralytics are sometimes brought to office in wheeled chairs, and 
it frequently happens that a wife or child escorts the head of the 
house to his desk each day. 

The provident outsider may argue that tlie clerk should provide for 
his old age. The point of that suggestion is considerably blunted, 
however, on examination of three stubborn facts which greatly affect 
the life and outlook of Government clerks, especially those in the 
District of Columbia. The first of these is the fact that the average 
Government salary is only $948; that is, $1,079 in the District of 
Columbia and $928 outside of the District.^ The second is the fact 
that the increased cost of living, which has been noted generally 
throughout the country, but is especially great in the large cities, is 
powhere more sharply felt than in the city of Washington. The 
price of the essential articles of life, food, clothing, and rent, to say 
nothing of entertainments and the extras that make life worth 
living, is pitched to the highest notch that the congressional salary 

> See Census Bulletin 94, p. 32. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES, 13 

of $7,500 a year will stand during the few months that Senators and 
Representatives are in town, and it remains there after they have left, 
to the despair of the year-long residents. 

The inadequacy of the average Government salary of $948 or 
$1,079 is more apparent when one reflects that two-thirds of the em- 
ployees subsisting on that salary are engaged in clerical or research 
work, which means that they are persons who have been brought up 
in some degree of comfort and refinement, and have received a con- 
siderable amount of education. It is fair to say that, under the oper- 
ation of the civil-service law, they are really a " select class," above 
the average in ability and training, a very large and increasing num- 
ber of them college graduates, men and women who are the intel- 
lectual and social peers of any official class in the world. Of the 
more than 1,300 employees in the Bureau of Plant Industry, De- 
partment of Agriculture, for instance, between 700 and 800 are doing 
scientific work, and 500 of those are university graduates. While $1,079 
a year might not be called an inadequate salary for some classes of 
workers, in some localities, it certainly can not be called fair or ade^ 
quate for a person of education in the city of Washington, or comr 
parable with the salaries received all over the country by people of 
equal abilities doing similar work in business fields. Finally, the fact 
is plain that the Government clerk has few opportunities of making 
money outside of his employment or of investing his savings. His 
manner of life is not calculated to develop business acumen, and 
information in regard to desirable investments is not likely to come 
his way. He reaches old age more dependent than in his youth on 
the stipend of his office, and he usually hangs on doggedly until death 
releases him. 

LACK OF PLAN MEANS PECUNIARY LOSS TO GOVERNMENT. 

In the second place, the service suffers severely by the retention of 
the aged in office, as less work is performed for the amoimt of money 
appropriated than would be the case if each employee did his full 
share. Just how much loss in actual number of dollars is sustained 
by the Government through the inefficiency of the superannuated it is 
difficult to estimate, but an attempt has been made to do so. In a 
report on superannuation in the civil service made by a special com-, 
mittee of the National .Civil Service Reform League in 1900, the Civil 
Service Commission is quoted as authority^ for the statement that 
those over 70 years of age do about three-quarters of the " maximum 
quantity of work performed by a thoroughly efficient employee." 
This loss to the Government through superannuation in the depart- 
ments at Washington amounts therefore to about $400,000 a year. 

* See Special Report U. S. Civil Service Commission to the President, p. 3. 



14 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

The committee of the National Civil Service Reform League con- 
tinues the computation as follows: 

There are nearly five times as many classified United States employees out- 
side Washington, but only two-fifths as large a per cent are over 70 ; therefore 
there are ou+side Washington twice as many over 70. On the same basis of 
efficiency the loss outside Washington would be $800,000, or, in the whole 
classified service of the United States, $1,200,000/ 

Since the service is now much larger than when the estimate was 
made, the loss to the Government is probably considerably greater. 
In other words, to the extent of that sum of $1,200,000 a year the 
Government already has a civil pension list. 

LACK OF PLAN PREVENTS PROMOTION OF YOUNGER EMPLOYEES. 

In the third place, great injustice is done the whole body of em- 
ployees by retention in office of the aged and infirm, since the younger 
clerks not only have to do the work of their elders, but are also kept 
from merited promotions. The great extent of the loss through 
superannuation is partly due to the fact that the old employees are 
usually drawing the highest salaries in their respective offices. This 
fact is well brought out in the last annual report (1910) of the Hon. 
M. O. Chance, formerly Auditor for the Post Office Department. 
Says he : 

An unusually large proportion of the employees in this office are persons who 
have passed the age of greatest usefulness. While the efliciency records of 
some of them are equal to those of the younger clerks, it is nevertheless a fact 
that the general average of efficiency among the aged clerks is below the 
standard. On account of their infirmities, both they and the service would be 
better off were they to be honorably retired on adequate annuities and their 
places given to younger and more active men. Many of these aged people, by 
reason of long service, are receiving the highest clerical compensation of the 
office, and thus handicap the work and the finances of the service. 

In a speech made at a meeting of the Civil Service Retirement 
Association on January 29, 1907, the late Hon. Charles H. Treat, 
Treasurer of the United States, said that he had never seen anything 
more beautiful than the way in which employees habitually carried 
along one of their number who had grown too old for the work, shar- 
ing his labors among them uncomplainingly. While such a spec- 
tacle may be inspiring to the idealist, its practical effect on the young 
and ambitious is discouraging. 

NEED OF RETIREMENT MEASURE EXPRESSED BY ADMINISTRATIVE 

ornciALS. 

These, then, are the conditions which confront every administrative 
official in the executive offices. Accustomed to the alertness and dis- 

> See Report on Superannuation In the Civil Service, 1906, p. 6. 



KETIE.EMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 15 

patch characteristic of business offices in private life, he usually 
plans, on first coming to Washington, to do some departmental house 
cleaning that shall put his office on a strictly business basis, but 
whatever his ability as an organizer, he soon finds himself powerless, 
without some means of retiring the aged members of his force, to 
effect any considerable reforms. A statement to this effect will be 
found in the annual reports for years past of Cabinet officers and 
chiefs of bureaus in the several departments as well as in the pub- 
lished reports of hearings before congressional committees.^ 

The present Secretary of the Treasury, the Hon. Franklin Mac- 
Veagh, expressed himself in favor of a retiring allowance for the 
superannuated in his 1909 report, as follows : 

KETIRING PENSIONS. 

Any inquiry into the efficiency of administration very soon involves a consid- 
eration of a policy of civil-service retiring pensions. And it seems to me that 
the conclusion is unavoidable that a really efficient service is out of the question 
without a method of honorably and justly retiring persons whose efficiency is 
seriously impaired. It is quite true that the older clerlvS of the service are no 
more likely than the younger clerks to be inefficient. Indeed, their experience 
and their settled relations to the service could easily compensate for the lack 
of some other personal equipment. But just as there are instances where the 
younger clerks should be disciplined or dismissed, so there are many cases among 
the older clerks where, in justice to both themselves and the service, they ought 
to be honorably relieved. 

The service is blocked in many instances by the unwillingness of the rfficials 
in charge to throw out of place worthy men and women who have given the 
best of their lives to the work of the Government. So that, in a very imperfect 
and wholly unsatisfactory manner, practically a pension system is and long has 
been in operation. 

The United States is the only nation that has no general legal retiring pension 
for the employees of its civil service. W^e have this unique position in the 

lAnnual Messages to Congress of William Howard Taft, President of the United States, 
1909 and 1910. 

Reports of Franklin MacVeagh, Secretary of the Treasury, 1909 and 1910. 

Reports of Ethan A. Hitchcock, Secretary of the Interior, 1904 and 1905. 

Report of James R. Garfield, Secretary of the Interior, 1908. 

Reports of Richard A. Ballinger, Secretary of the Interior, 1909 and 1910. 

Report of Oscar S. Straus. Secretary of Commerce and Labor, 1908. 

Report of Charles Nagel, Secretary of Commerce and Labor, 1910. 

Report of Frank A. Hitchcock, Postmaster General, 1909. 

Report of Joseph Stewart, Second Assistant Postmaster General, 1909. 

Reports of Civil Service Commission, 10th, 11th, 19th, 20th, 22d, 25th, and others. 

Report of Committee on Department Methods (Keep Commission), 1907. 

Reports of M. O. Chance, Auditor for the Post Office Department, 1909 and 1910. 

Hearings before the House Committee on Reform in the Civil Service, 1896, 1904, 1908. 

Statement of E. F. Ware, Commissioner of Pensions, February 9, 1904. 

Statement of Gen. F. C. Ainsworth, Chief of the Record and Pension Office, War 
Department, February 12, 1904. 

Statement of William Dudley Foulke, Member of the National Committee on Super- 
annuation, Civil Service Reform League, February 23, 1904. 

Statement of Frederick I. Allen, Commissioner of Patents, February 26, 1904. 

Statement of W. H. Moody, Secretary of the Navy, March 5, 1904. 



16 KK'riKKMhlN'l' Oh' SU I'KIIA N NUATbiU CIVI L-SKKVICE EMPLOYEES. 

world, mIoiik wil.li a roi»ii<)><i<»n for great wealth and for otherwise liberal 
('xpciKliluros. The oiiUn' civili/cd world has shown great and growing recog- 
nilioii (»r ixMisions or rotlriiiK allowances; and while the United States is so far 
beliind (lie rest of llie world in eivil pensions, it lias by fur the larsest pension 
list anioiiK' Mu^ nnlions. The war and n.-ivy pensions are a reeoKnized part of 
our policy, and in tlie civil service pensions liave l)een extended to the judiciary. 
And though as a government we have halted at a general n^liring allowance for 
civil employees, the great universities of our country and the great corporations 
have been taking innnense steps along this very line, and the Federal Govern- 
ment is becondng more and more isolated. While I have spoken only of the 
effect upon the service itself of the lack of a system of retiring pensions, there 
are, as everyone knows, otlier claims upon the (government to establish this 
I)oIicy. I hope that the (>)ngress will take nj) and consider favorably one of the 
various forms of law that are proposed. This sub.i(>ct has l)een before the coun- 
try and before the ({overnment for a long while, and if the policy were to be 
adopted at this time it would Tindoubledly give a strong inii)u]se to that improve- 
ment of every branch of the service which is now so much desired by the people 
and which is a matter of so much interest to the Congress and to tlie adminis- 
tration. In expressing my opinion in favor of the retiring allowance, I pur- 
posely avoid the exi)ression at this time of a preference for any particular plan 
or system. 

Til his next and most recent report (1910) Secretary MacVeiip^h 
wont Jhirdier and declared liiinsell' in I'avor of the " contributory 
plan." Said ho: 

I now beg to n>l\>r. as T did last year, to another re(iuisi(-e — another absolute 
requisite -of a satisfactory sei;vice. Tliere is no [)ractical way to put the 
Covernment service properly on its feet without a fair and .just method of civil- 
service r(>tiri>nu>nt. This is not only :i requisite, it is a preri>quisite; and unless 
(longi'css shall give the lOxecutive this nci-essary method of improving the serv- 
ice (lie country nnist accept a service that is not fully satisfactory and whicli 
can not be made fully satisfactory. 

Fortunately this retiring provision can be made — and this is mathematically 
demonstrable — without the exjiense of one dollar to the Government. The con- 
tributory system of retiring allowances is not only the only system that has any 
cliance wliatever of being adopted, but it fortunately is the l)est system by far 
for the men and wouumi of the service; and it is, therefore, the i)art of wisdom 
for all tlie friends of tins movement to concentrate upon this method. Of 
course, there must be i)aid liy the Governn\ent the retiring allowances until 
tl\e contributions l)y tlie members of the service liave become sullicient to take 
care of the iiayments; but these preliminary payments l)y the Government need 
not cost tlie Government anything wliatever. All of the executive departments 
which have so far been consulted stand ready to carry out such n law without 
asking any addition whatever to their ordinary ai»propriations. The ob.iection, 
tlierefore, that we might lie introducing another pension roll has no justification. 
It liad conipl(>te justiUcation as long as tlie straight pension was in contemplation. 
The I'diilriliutory allowance, however, is an entirely different matter and eliiiii- 
nales tliis objection altogether. The Government, therefore, can without any 
exiiense to itself, and by the mere passing of a law, set this whole matter right. 
It is only necessary to mention two things about tlie contributory plan, as con- 
trasted with the pension plan, to make clear its advantages to the people in the 
service. It could never be taken as an answer to a claim for increased pay. 
It is a contribution of their own and not a contribution of the Government, and 
it is in no sense an estoiipol of any argument in favor of increased pay at any 



RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 17 

time during its operation. On the other hand, a straight pension paid by the 
Government would always be taken as an additional salary and would per- 
petually have a tendency to estop any argiuneut for increased compensation. 

The other consideration is that under a pension system a man must not only 
live beyond the retiring age, but he must continue always in the service until 
that period in order to receive any pension at all; whereas under the con- 
tributory system, under all the accidents of life, he gets what belongs to him 
of the savings of the system. It is impossible not to regard a straight pension 
as a part of the salary, and if a man loses it altogether, owing to the accidents 
of life, he loses a part of his aggregate salary. 

The Treasuiy Department is engaged in the worl< of Increasing Its effiflency 
inid diminishing the relative expense of operation. It has made considerable 
progress, but has not nearly reached the end. At least 400 positions have been 
abolished. So far we have been able to take care of all the dis])lacod em- 
ployees, except in the case of the mint at Philadelphia and in other odioes 
outside of Washington and New York, where, in the nature of the case, there 
were no opportunities for transfer. We have succeeded in transferring those 
who were displaced to places becoming vacant in the normal way, such va- 
cancies having been allowed to accumulate by temporary appointments. Whether 
It will be possible to continue to take care in this way of the employees whose 
positions we are abolishing I do not know. But this is clear, that any suc- 
cessful effort to improve the administrative operations of a large department 
like the Treasury is immediately handicapped and might well be discoui'aged 
entirely by the absence of a just method of retirement. And even when it Is 
possible to protect these displaced clci-ks from being thrown into the streets 
it is done, in many cases, in denial of the right of an oflice to efficient help. 
Working in these improvements brings constantly to mind the hopelessness of 
ever arriving at a complete state of efficiency without a way of retiring clerks 
in a just and humane manner. I have no doubt that this very discouiaging 
feature has in the past stood in the way of many attempts to improve the 
elHciency and economize the expense of operation in the dei)artments. 

The Hon. Ethan A. Hitchcock, while Secretary of the Interior, 
said in his annual report of 1905 : 

It has been the policy of the department to select persons for employment 
therein of ability and integrity, and to insist upon the strict performance of 
the duties assigned them. Many branches of the service, however, have suf- 
fered by reason of the growing incapacity of some of the clerical force, for 
which there is no adequate I'cmedy without doing injustice in many cases. 
On July ], 100.3, the nun)ber of emr)Ioyecs of the department in Washington 
aggregated 4,166, of which 758 wore between 50 and 59 years of age, and SIO 
GO years and over. The total number of employees of the department on the 
Jst day of July, 1905, was 4,082. The most recent census among the bureaus 
and oflices of the department is that taken in the Pension Office, whicli shows 
a total of 1,634 employees. Of this number there are 516 over 60 years of age, 
and the average age of all being .50 years and 3 months. This average, however, 
will doubtless be less at this time in other branches of the service. ♦ * • 

The system now in use relative to the maintenance of the clerical force is 
unsatisfactory and expensive, and some provision by way of retirement should 
be provided to meet the conditions that exist. I therefore renew the recom- 
mendation contained in n)y last annual report that appropriate legislation be 
enacted by Congress for the retirement from duty of superannuated clerks or 
aged employees. 

7419G°~S. Doc. 745, 61-3 2 



18 KBTIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

In his annual report of 1908, the next Secretary of the Interior, 
the Hon. James Kudolph Garfield, reenforced the sentiments of his 
predecessor, saying : 

It is to be hoped that Congress will provide for a reclassification of all the 
employees of the Government and a readjustment of the salaries. ?Qo one 
administrative change is more needed than this. It would enormously increase 
the efficiency of the public service. In addition to reclassification, adequate 
provision should be made for the retirement of employees who have given long 
and meritorious service.^ 

The late Secretary of the Interior, the Hon. Richard A. Ballinger, 
made similar recommendations in his annual reports. In 1909 he 
said : 

The Department of the Interior in all of its bureaus in Washington is labor- 
ing under a great disadvantage in trying to introduce modern business methods 
and to keep pace with the increasing volume of work, because of its inability 
to retire members of the clerical and laboring force after they have become 
incapacitated by age or other causes. Intermittent efforts have been made to 
secure congressional aid to retire them upon a basis that will recognize their 
long service and protect them against want. An involuntary retirement and 
sustenance statute, by which all persons after arriving at a prescribed age, 
or for other reasons, should be required to stand an examination before a 
competent board as to physical and mental ability, with a fund created by 
national appropriation — in the first instance, and maintained by some equitable 
system of contribution from salaries — would seem to me to be advisable. 

The need of a retirement plan for Government employees was again 
noted by Secretary Ballinger in his 1910 report: 

The appropriations for the maintenance of the service of the department and 
of its buildings and grounds can be lessened only by a unification and simplifi- 
cation of business methods in the several bureaus and the establishment of a 
retirement fund for Government employees. So long as a retirement fund is 
withheld, the practice of pensioning superannuated and defective, though 
deserving, clerks by retaining them on the salary rolls must continue. This 
necessarily results in many competent persons receiving inadequate salaries 
and a reluctance to reward the highest grade of service by compensatory 
remuneration. 

The work of the Treasury and Interior Departments has probably 
suffered more than that of other departments through the incompe- 
tence of aged employees, while the Department of Commerce and 
Labor, being most recently organized and therefore full of "new 
blood," is the least hampered. Twenty-five years from now, however, 
when its middle-aged employees are old, like so many employees of 
the Land Office, the Pension Office, and the Treasury, the need of a 
retirement plan for civil employees will be as strongly felt in the 
Department of Commerce and Labor. It is significant, therefore, that 
the Lion. Oscar S. Straus, formerly Secretary of Commerce and 
Labor, stated in his annual report of 1908 the great need of a measure 

» See p. 2. 



EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 19 

for the retirement of superannuated employees, and drew attention 
to another difficulty in the way of enforcement of the civil-service 
law ; that is, the activity of the inefficient clerks' political friends. 
Said he: 

On July 1, 1907, the chiefs of bureaus and divisions were directed to report the 
efficiency ratings of all persons who were shown by the ratings of 1906 to be 
below the required standard of ability either as to the quantity or quality of 
work performed. These reports showed that the effect of the warning given in 
January, 1907, that an immediate improvement was expected in their work, was 
most salutary. A number of instances were reported in which there had been 
a material improvement either as to quality or quantity, or both. There were 
some cases, however, in which there was apparently no improvement. Several 
of these cases have been adjusted by discontinuance without prejudice, reduc- 
tion in salary, or by resignation. As a rule, the persons rated below the 
required standard are employees of advanced age who have given many years 
of service to the Government. The obstacles in the way of the separation of 
such employees are real and not fancied. The head of the department, while 
not forgetful of his responsibility, finds it a difficult task to direct removal, 
although it is conceded that the persons are no longer rendering efficient service. 
This is not so much due to the sympathy of the appointing officer — although it 
is possible that this may have some weight — as to the great pressure immedi- 
ately brought to bear by public and prominent men and women to prevent 
dismissal. This is a condition and not a theory, and is perhaps the strongest 
reason for the enactment of a law for the retirement of superannuated em- 
ployees.^ 

Mr. Straus's successor, the Hon. Charles Nagel, has given consid- 
erable space in his last annual report (1910) to the discussion of the 
problem of superannuation. Among other things he says: 

Probably no question dealing with the personnel of the service has been so 
seriously considered during the past year as that relating to superannuation. 
Most civilized countries now provide equitable means for the retirement of their 
employees, as do many of the State and municipal governments, as well as 
corporations and large industries, of this country. The problem was encoun- 
tered and dealt with in the United States Army and Navy 50 years ago. It is 
now critically present and awaiting solution in the civil departments of the 
Government, While many unacquainted with actual conditions have frequently 
approached the subject in a spirit of humanitarianism, most of those in and out 
of the service now look upon superannuation as an unavoidable contingency 
which must be met by the application of modern ideas and strictly business 
principles. Until this is done department oflacials will continue to bear the 
burden of an inefficient force rather than place themselves on record as remov- 
ing, or even reducing, a public servant who has become incapacitated while in 
the faithful performance of duty. Therefore, while humanitarian reasons may 
have at first suggested the advisability, and in fact the duty, of providing a 
system of retirement, it is now being recognized quite generally that the condi- 
tions are such as to more than justify it from a strictly economical point of 
view. The retirement of aged and superannuated employees under some liberal 
system would likely result in a positive financial saving by creating opportunity 
for the employment of young men who are able to do two to three times as 
much xfovk for the salaries paid. It is therefore important that the subject 

1 See p. 2. 



20 KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

have serious attention, to the end that the Government may be conducted in 
the most economical manner and at the same time provision be made for faithful 
servants who have devoted their entire lives to the transaction of the public 

business. 

In his last annual report (1910) the Secretary of War, the Hon. 
J, M. Dickinson, treats of the subject at length, quoting numerous 
officials of the War Department to the effect that a retirement measure 
for civil employees is greatly needed. Says he : 

I renew the recommendation made in my annual report last year that some 
provision be made for the retirement on annuities of employees who have be- 
come superannuated in the service, thus following the practice which many 
railroads and other large business enterprises have found it advisable to adopt. 

In his annual report for 1910 the Chief of Engineers, in acknowledging the 
" most loyal and efficient support and assistance in the transaction of the 
duties devolving upon him " received from the civilian employees of his office, 
states : 

" I take pleasure in joining my predecessor in the hope that some provision 
will speedily be made for their financial relief when they become superannu- 
ated in the public service, to which many of them have devoted the best years 
of their lives — the salaries of the office clerks as fixed by law, and practically 
unchanged for 50 years, being too small, excepting in rare instances, to permit 
such accumulation as will provide for their support when they become inca- 
pacitated for active duty." 

The following extracts are taken from the annual reports of other chiefs of 
bureaus of the War Department and of commanding generals of departments 
who have made similar recommendations : 

From report of the Paymaster General : 

" The present movement for the retirement of clerks with sufficient compensa- 
tion after they have reached an age which incapacitates them for the perform- 
ance of their full duties is certainly worthy of favorable consideration, and I 
hope that legislation will shortly be enacted which will establish a retired-pay 
list for Government clerks." 

From report of the Inspector General : 

" In my annual reports for several years past I have recommended the enact- 
ment of legislation that will provide a system for the retirement of the faithful 
employees in the classified service who become superannuated. I renew this 
recommendation." 

From report of the Quartermaster General : 

" The need of some provision for superannuated clerks is more pressing than 
ever before in the history of the department. During the year it has again 
become necessary to demote a number of deserving clerks, for causes which can 
De stated only' as worn out in service. For the protection of the Government's 
interests it will be necessary to continue this action and even to take the final 
step of discharging those whose capacity for service has reached the point where 
their retention can be no longer justified, and they will, unless some provision 
is made for them by legislative action, have to be set adrift under conditions 
which preclude every opportunity for obtaining remunerative employment else- 
where." 

From report of the Commissary General : 

" I also earnestly recommend the passage of a measure providing for the re- 
tirement, on some equitable plan, of old and faithful superannuated employees 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 21 

of the Government, for the reason that it would result in marked improvement 
in the service: 

" First, by attracting a better class of employees, a large percentage of vphom 
by reason of the provision for old age would remain in and make the service 
their career, becoming expert in their particular line of work, to the distinct 
advantage of the Government; and there never was a time when the highest 
qualification and equipment were more needed in the service than at present. 

" Second, by the added incentive held out to each employee to do his best 
in order to obtain promotion to higher grades, and later profiting by increased 
retired pay. 

"Third, by the periodic and automatic elimination of those whose efficiency 
has been impaired by age or infirmity and the introduction of younger and more 
vigorous men, thereby maintaining an active and efficient working force and 
making it possible in time to transact the business with fewer employees. 

" Fourth, aside from all sentimental consideration, it is believed that the 
service would be greatly improved if it should be known to all who enter it 
that a provision is made for the support of themselves and their families when 
old age comes upon them. It would be an inducement for them not only to 
remain in the service, but to deport themselves in such a manner as to do noth- 
ing to forfeit so valuable a provision. 

" Fifth, because in cases of protracted illness employees worry over the pos- 
sibility of being discharged, and the anxiety tends to retard their recovery and 
return, whereas if they were free from this apprehension and felt secure of 
being provided for in the event of becoming incapacitated their strength and 
courage would be sustained and recovery assisted rather than impeded. 

" Sixth, because railroads, corporations, and commercial houses recognize and 
reward long and faithful service by retirement, and regard it as a good business 
investment; and other governments also make some provision for their aged 
and worn-out civil servants." 

From report of the Surgeon General : 

" Some discussion of the cognate question of the superannuation of civil 
employees may also be deemed pertinent. This office has perhaps been fortunate 
In having suffered little burden from its elderly and aged employees. The 
majority of the clerks of advanced years came into this office in the full tide 
of youth shortly after the close of the Civil "War, nearly all of them either 
directly or indirectly from the Army. Their military experience and familiarity 
with Army customs, methods, and principles have lent the greatest value to 
their work. They have grown old in the service ; and age has in some instances 
dimmed the keenness of their faculties or diminished the vigor of their industry. 
Most of them are of the highest usefulness, and by reason of their natural 
gifts, experience, and continued efficiency are kept in the positions of greatest 
trust and responsibility. Their absence record compares favorably with that 
of their younger colleagues, while their capacity, as a rule, remains unimpaired. 
In some cases it has been found necessary, in their own interest as well as in 
that of the service, to assign them' to less onerous tasks with which their failing 
powers were better able to cope; and this has been accompanied by an appro- 
priate reduction of grade and pay, a procedure which is distressing alike to 
those who must cause such reductions and to those who suffer by them. But 
these veterans, even at the reduced pay, still were able to earn a livelihood. 
I am bound to admit, however, that one or two instances have come to my 
notice where men enfeebled by disease and the infirmities of age have after 
long service been unable to continue the performance of duty of any character, 
and under the law have, after a brief indulgence of leave, found themselves 



22 RETTKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

dropped from tlie rolls. Few men In ttie lower grades of public service in 
Washington, Imving due regard to the great cost of the comforts of life, of the 
decent maintenance of their families, and of the education of their children, 
are able to make adequate provision for an unproductive old age. When, there- 
fore, such disability comes to these old men, as it will to some, it appears a 
harsh reward for a lifetime's service to thi'ow them out upon the cold sympa- 
thies of the world. Suitable provision for their last years is a fair call of 
humanity. At the same time it would serve a valuable public purpose as well, 
for it would attract to and retain in the service of the Government a class of 
employees of exceptional capacity who, without such inducement, now turn 
to a private career, because of the greater opportunities there found for the 
accumulation of a reasonable competency for their old age." 

From report of Brig. Gen. F. A. Smith, commanding Department of the 
Missouri : 

" ♦ * * It is also recommended that some measures be taken to provide a 
pension or a system of retirement for clerks and employees who have become 
superannuated and who have devoted the greater part of their lives to the 
Government service." 

From report of Brig. Gen. C. L. Hodges, commanding Department of Dakota : 

" * * * I also recommend that steps be taken to have such legislation 
enacted as will provide a system of retirement for all clerks and employees of 
the War Department who have become superannuated in the Government 
service." 

Adjt. Gen. F. C. Ainswortli, when Chief of the Kecord and Pension 
Office, War Department, in his testimony before the House Commit- 
tee on Keform in the Civil Service on February 12, 1904, compared 
the present need of the civil service for a satisfactory retirement 
j)lan to the need of a similar measure once felt by the military serv- 
ice. He v^ent so far as to say that our present system of retaining 
the superannuated in office amounts in effect to the maintenance of a 
civil pension list. Said he: 

In the absence of some measure of relief it is the inevitable result of per- 
manence of tenure of office in the civil as well as in the military establishment 
that there shall be an accumulation of superannuated or otherwise incompetent 
oflicials. The truth of this statement is well illustrated by the condition which 
existed in the Army of the United States for many years prior to the Civil War. 
There being no retired list at that time, officers were as a rule retained on 
the active list until they died. The result of this was that the Army, especially 
in the higher grades, was burdened with a large number of disabled or super- 
annuated otficers. some of whom rendered no actual service for many years, 
and all of whom hold the grades and received the salaries which should have 
been held and received by junior officers who actually performed the duties of 
these grades. At the beginning of the Civil War Congress enacted a retirement 
law, and this relieved the Army of the incubus which it had borne so long. 
A similar state of affairs exists in the civil service to-day, although, of course, 
the evil has not yet attained, and possibly may never attain, very dangerous 
proportions. But, disguise the situation as we may, the fact remains that so 
long as any employees of the civil establishment are retained on the pay rolls 
beyond the period of their ability to render a fair return in service for the 
Balaries paid them to that extent a civil pension list or civil retired list has 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES, 23 

been established. Such a list, although not a large one, and perhaps a compara- 
tively unimportant one at the present time, is in existence to-day and will 
continue to exist until the situation is materially changed by legislation. 

The present Postmaster General, the Hon. Frank A. Hitchcock, dis- 
cussed the need of making provision for the retirement of super- 
annuated employees in his annual report of 1909, as follows : 

In recent years the subject of making provision for the retirement of super- 
annuated employees in the civil service has received much consideration. It is 
believed that the interests of the employees and of the Government alike de- 
mand legislation to this end. 

The work of the postal service, like that of every great business institution, 
public or private, requires special training. Years of experience are necessary 
for the attainment of a high degree of proficiency in the discharge of the duties 
devolving on postal employees. The department's policy is therefore to recruit 
its force from young men, and to retain them until such time as their usefulness 
is impaired by advancing a^e. 

In view of the increased cost of living, the salaries paid are barely sufiicient 
to enable the employees to meet current needs, and the opportunity to make 
provision for old age is small. These conditions suggest the adoption of 
measures that will insure Government employees against want after they pass 
the period of active service. Private business establishments in this and foreign 
countries find that such a course brings practical returns in the increased 
loyalty and zeal of employees. 

Experience has shown that in default of such provision administrative officers 
hesitate to recommend the dismissal or the reduction in salary of superannuated 
employees who have spent their lives in the Government service. The drain on 
the national finances by their retention at full pay after they have become in- 
capacitated for efficient service is far greater than would be the cost of a 
reasonable system of civil pensions. 

The Second Assistant Postmaster General, the Hon. Joseph 
Stewart, emphasized in his report of the same year the special need 
of a retirement measure for the benefit of the Railway Mail Service : 

* * * Recommendation has been submitted from time to time that suitable 
provision be made for the retirement of railway postal clerks who have become 
unfit for active service by reason of advanced age or physical disability. The 
need for this in the Railway Mail Service is more urgent, perhaps, than in other 
branches of the postal service, because the character of the work demands young 
and active men. Old men can not stand the excitement and nervous strain of 
service on our heavy lines, and an endeavor to retire them, as far as practicable, 
to lighter runs usually finds opposition because it necessarily involves a reduc- 
tion in salary, and in some cases the breaking of home ties by change of 
residence. If retained on the heavy lines the burden of performing some portion 
of their duties necessarily falls on younger clerks, or is met by an additional 
clerical force. There has been a general discussion for some years with ref- 
erence to a suitable provision for the retirement of civil-service employees upon 
terms fair and equitable to both the Government and the employees, which I 
favor. If such provision be made it will no doubt cover the Railway Mail 
Service. If, however, there is no prospect for early action it is recommended 
that consideration be given a provision covering the Railway Mail Service. 



24 KETIKEMENT OF SUPEKAIi] NUATED CIVIL-SEEVICE EMPLOYEES. 

The former Auditor for the Post Office Department, the Hon. M. O. 
Chance/ has dwelt on the need of a suitable and adequate superannua- 
tion measure in his reports for 1909 and 1910. He states also that he 
has considered the various solutions offered to the problem of super- 
annuation and that the only plan that commends itself to him as 
sound and equitable is the one embodied in Senate bill 1944, the plan 
discussed in this report. His reasons are thus set forth : 

I wish to repeat, with emphasis, what I said in my last annual report In 
regard to the need in this office of a suitable and adequate superannuation 
measure * * *. 

The various straight-pension and contributory plans of retirement proposed 
have received my careful attention, and I have no hesitation in saying that the 
only plan that commends itself to me as a thoroughly sound and equitable solu- 
tion of this most difficult problem is that embodied in Senate bill 1944, com- 
monly referred to as the Perkins bill, and found in a modified form in the Gillett 
bill. This bill makes provision for retiring civil employees on annuities pur- 
chased by themselves by means of monthly deductions from salary. It is in 
effect f! compulsory savings scheme, the Government merely to stand back of it 
by guaranteeing a certain rate of interest, taking care of the small expense of 
administration, and providing the annuities for services rendered up to the 
passage of the bill. 

As compared with a straight civil pension paid out of the Federal Treasury, 
this plan has many advantages, both for the Government and for the employees. 
The principal obligation of the Government would be to establish the plan by 
providing for those already grown old in the service, an obligation that would 
ultimately cease ; whereas under a pension the burden on the Public Treasury 
would coutinunlly increase. The chief advantage to the employee m this plan 
over a civil pension is the fact that his contributions remain his property under 
all conditions, and in case of resignation from the service before the age of 
retirement, or in case of death, they are returned to him or his estate with 
compound interest. On the other hand, under a civil pension scheme only those 
who live and are able to remain in the service to a stated age receive any benefit. 
This means, furthermore, that the employee works below the market price, since 
the pension is invariably taken into account in fixing salaries, and unless he 
lives and remains in the service to pensionable age and enough longer to draw 
the full value of his deferred pay his family is worse off through all the years 
of his service than they would have been had there been no civil pension list. 

It is manifest also that this contributory plan would tend to stimulate 
strongly the independence of the individual, as it should do, while a pension 
paid out of public funds on condition that the employees survive and remain in 
the service to a stated age must of necessity have the opposite effect and destroy 
the independence of the employee. A straight pension would have a numbing 
effect also on the public service, since it would interfere with the removal of 
young or middle-aged employees who are incompetent, dismissal under a pen- 
sion system meaning forfeiture not only of salai'y but of prospective pension 
already partly earned. 

For these reasons, chiefly, I most heartily indorse the plan embodied in Sen- 
ate bill 1944. 

The subject of superannuation in the public service has received the 
attention of President Taft in two annual messages to Congress. In 

1 Now secretary of the Efficiency and Economy Board, recently appointed by President 
Taft. 



RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 25 

his message to Congress in 1909, under the caption of " Reduction in 
the cost of governmental administration," he recommended legisla- 
tion for the retirement of superannuated civil servants, coupling with 
it a recommendation for an increase of salaries. He said : 

More than this, every reform directed toward improvement in the average 
efficiency of Government employees must depend on the ability of the executive 
to eliminate from the Government service those who are inefficient from any 
cause, and as the degree of efficiency in all the departments is much lessened 
by the retention of old employees who have outlived their energy and useful- 
ness, it is indispensable to any proper system of economy that provision be made 
so that their separation from the service shall be easy and inevitable. It is 
impossible to make such provision unless there is adopted a plan of civil 
pensions. 

Most of the great industrial organizations, and many of the well-conducted 
railways of this country, are coming to the conclusion that a system of pensions 
for old employees, and the substitution therefor of younger and more energetic 
servants, promotes both economy and efficiency of administration. 

I am aware that there is a strong feeling in both Houses of Congress, and 
possibly in the country, against the establishment of civil pensions, and that this 
has, naturally, grown out of the heavy burden of military pensions, which it 
has always been the policy of our Government to assume; but I am strongly 
convinced that no other practical solution of the difficulties presented by the 
superannuation of civil servants can be found than that of a system of civil 
pensions. 

The business and expenditures of the Government have expanded enormously 
since the Spanish War, but as the revenues have increased in nearly the same 
proportion as the expenditures until recently, the attention of the public, and 
of those responsible for the Government, has not been fastened upon the ques- 
tion of reducing the cost of administration. We can not, in view of the ad- 
vancing prices of living, hope to save money by a reduction in the standard 
of salaries paid. Indeed, if any change is made in that regard, an increase 
rather than a decrease wj^l be necessary ; and the only means of economy will 
be in reducing the numbef of employees and in obtaining a greater average of 
efficiency from those retained in the service. 

In his next and most recent annual message to Congress (1910) 
President Taft went still further and recommended a definite plan — 
the one discussed in this report — and a definite bill — the Gillett bill 
(H. R. 22013) — as the one, in his judgment, best calculated to solve 
satisfactorily the problem of superannuation in the civil service. 
He said: 

It is impossible to proceed far in such an investigation without perceiving the 
need of a suitable means of eliminating from the service the superannuated. 
This can be done in one of two ways, either by straight civil pension or by some 
form of contributory plan. 

Careful study of experiments made by foreign governments shows that three 
serious objections to the civil pension payable out of the Public Treasury may 
be brought against it by the taxpayer, the administrative officer, and the civil 
employee, respectively. A civil pension is bound to become an enormous, con- 
tinuous, and increasing tax on the public exchequer; it is demoralizing to the 
service since it malies difficult the dismissal of incompetent employees after they 



26 EETIREMEJSrr OP SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

Lave partly earned their pension ; and it is disadvantageous to the main body of 
employees themselves since it is always taken into account in fixing salaries and 
only the few who survive and remain in the service until pensionable age receive 
the value of their deferred pay. For this reason, after a half century of expe- 
rience under a most liberal pension system, the civil servants of England suc- 
ceeded, about a year ago, in having the system so modified as to malie it vir- 
tually a contributory plan with provision for refund of their theoretical contri- 
butions. 

The experience of England and other countries shows that neither can a con- 
tributory plan be successful, human nature being what it is, which does not 
make provision for the return of contributions, with interest, in case of death or 
resignation before pensionable age. Followed to its logical conclusion this 
means that the simplest and most independent solution of the problem for 
both employee and the Government is a compulsory savings arrangement, the 
employee to set aside from his salary a sum sufficient, with the help of a liberal 
rate of interest from the Government, to purchase an adequate annuity for him 
on retirement, this accumulation to be inalienably his and claimable if he leaves 
the service before reaching the retirement age or by his heirs in case of his 
death. This is the principle upon which the Gillett bill now pending is drawn. 

The Gillett bill, however, goes further and provides that the Government shall 
contribute to the pension fund of those employees who are now so advanced 
In age that their personal contributions will not be sufficient to create their 
annuities before reaching the retirement age. In my judgment this provision 
should be amended so that the annuities of those employees shall be paid out of 
the salaries appropriated for the positions vacated by retirement, and that the 
difference between the annuities thus granted and the salaries may be used for 
the employment of efficient clerks at the lower grades. If the bill can be thus 
amended, I recommend its passage, as it will initiate a valuable system and 
ultimately result in a great saving in the public expenditures. 

It would seem from these and similar statements that the chief 
executive officials of the Government are agreed in feeling that the 
highest degree of effectiveness and economy is impossible in the ad- 
ministration of the public offices so long as Congress fails to enact 
legislation for the retirement of superannuated employees. Most of 
them hesitate to indicate preference for any particular plan of retire- 
ment, feeling apparently that that is a matter to be worked out by 
experts. The Secretary of Commerce and Labor has, however, de- 
clared himself in favor of a " straight pension system " if salaries 
remain as they are; the Secretary of the Treasury and the Secretary 
of the Interior have expressed preference for a " contributory plan," 
and President Taft and Auditor Chance have recommended, respec- 
tively, the Gillett (H. E. 22013) and Perkins (S. 1944) bills, two 
bills covering a contributory plan which are identical in principle and 
almost so in detail. Nearly every joublic officer who has discussed the 
problem has made reference also to the inadequacy of Government 
salaries, seeming to appreciate the fact that the question of salaries 
and of retirement are two phases of the same general problem — 
efficiency in the civil service. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 27 

Two things therefore seem clear from all these statements: 

(1) That the interests of the service demand the elimination of the 
superannuated employee; and 

(2) That elimination of the superannuated employee from the 
service after he has been poorly paid for years is not just unless it 
is accomplished by retirement of the employee on a competence. 

This means that an adequate plan for the retirement of super- 
annuated employees of the civil service is necessary as a logical com- 
plement of the civil-service law and that the absence of such a plan 
practically nullifies much of the good that the law would otherwise 
accomplish. 

NUMEROUS RETIREMENT BILLS INTRODUCED IN CONGRESS. 

The truth of this conclusion having long been recognized, many 
bills providing for the retirement of Government employees have 
been introduced in Congress. Some of the proposed measures 
have been carefully considered by the proper congressional com- 
mittees, but until February 23, 1909, no bill had ever been favorably 
reported out of committee. The bill then reported to the House of 
Representatives by its Committee on Reform in the Civil Service, of 
which Hon. Frederick H. Gillett was chairman, was first considered at 
hearings held before that committee on March 10, 11, 13, 20, and 21, 
and on April 13, 1908. While lack of time prevented the members 
of the committee from investigating thoroughly some of the ques- 
tions involved in the proposed measure and reporting on it before 
the close of the first session of the Sixtieth Congress, they agreed 
to take up the subject on the opening of the second session, and 
requested that further data bearing on the plan be prepared in the 
interval. 

PLAN EMBODIED IN PERKINS, GILLETT, AND AUSTIN BILLS. 

The plan under consideration is found embodied in three bills 
introduced in the House of Representatives in the spring of 1908 
and known, respectively, as H. R. 17969, H. R. 18982, and H. R. 
21261, a fourth bill favorably reported on February 23, 1909, and 
known as H. R. 28286, a fifth bill introduced in the Senate on April 
21, 1909, and known as Senate bill 1944, a sixth bill favorably re- 
ported by the House committee on April 4, 1910, and known as H. R. 
22013, and finally a seventh bill introduced for the second time April 
4, 1911, as H. R. 729. The groundwork of the seven bills is identical, 
the differences being of minor consideration, though in some cases of 
no little importance. The proposed plan first found public expression 
in a preliminary report of the subcommittee on personnel of the Com- 
mittee on Department Methods, commonly known as the " Keep 



28 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Commission," of which the author had formerly been a member, 
and was distributed in a circular sent out by the Civil Service Ketire- 
ment Association on August 9, 1907. The bill drawn up to embody 
this plan was criticized by the National Civil Service Keform League 
in its convention held at Buffalo in November, 1907, for certain fea- 
tures relating to the interest which the Government was required to 
pay on the clerks' savings. To meet these objections the subcommit- 
tee modified these features, and the resulting bill, popularly known 
as the "Keep bill," was introduced in Congress on February 18, 
1908, by Hon. Joseph A. Goulden, of New York, as H. R. 17969. 
Later, the objections of the League were met by the author in another 
way — in a bill introduced in Congress on March 10, 1008, by Hon. 
Frederick H. Gillett, and known as H. R. 18982. At the hearings 
held in the spring of 1908 members of the subcommittee of the Keep 
Commission, representatives of the Civil Service Retirement Asso- 
ciation, and various individuals with ideas on the subject of retire- 
ment funds had an opportunity to speak for and against this plan 
and any other, and as a result of the sifting and weighing to which 
each clause of the two proposed bills was subjected a third bill was 
evolved, which was introduced on April 20 by Mr. Gillett, and is 
known as H. R. 21261. 

After study of all the ideas advanced at these hearings and the 
history of retirement plans in other countries, the author prepared the 
text for a fourth bill, which is the one presented and discussed in this 
report. The full text of this proposed bill is found on page 210. It 
was introduced in the Senate on April 21, 1909, by Senator Perkins, 
formerly chairman of the Committee on Civil Service and Retrench- 
ment, and is knoAvn as Senate bill 1944. In the meantime, late in the 
second session of the Sixtieth Congress (February 23, 1909) , the House 
Committee on Reform in the Civil Service reported favorably a bill, 
. which is known as H. R. 28286. It differs from the bill here discussed 
in providing that annuities for back services shall be paid out 
of a fund created by deductions from the salaries of new entrants 
and the salaries of those promoted, instead of by the Government. 
A new administration coming in and a special session of Congress 
being called a few days after this bill was favorably reported, no 
action could be taken on it. Late in the following session, the first 
session of the Sixty-first Congress, another bill (H. R. 22013) was 
favorably reported by the House committee (April 4, 1910). This 
bill approaches much more nearly to the ideal here discussed than did 
the bill favorably reported the previous year, for it provides, like 
Senate bill 1944, that annuities for back services shall be paid by the 
Government, but puts a limit of $600 a year on the amount that can 
be paid by the Government to any one individual. On the other 
hand, it makes extremely liberal provision for retirement in case of 



EETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 29 

disability. Both the bills favorably reported (H. K. 28286 and H. E. 
22013) are frequently referred to as ihe " Gillett bill," but it should 
be noted that they differ radically in regard to the method proposed 
for paying annuities on past services, and that the second Gillett 
bill (H. K. 22013), the latest expression of the House committee's 
judgment,^ is identical in principle and in almost every detail also 
with the Perkins bill (S. 1944), here expounded. This report is, 
therefore, a report on the last ^ Gillett bill as well as the Perkins bill.^ 

Through all the modifications suggested in these several bills the 
plan itself remains unchanged. It divides itself naturally into two 
parts. Part I provides annuities for employees rendering service 
from now on. Part II provides annuities for employees who ren- 
dered service prior to the adoption of the plan. Part I is really the 
plan proper, since the operation of the second part will ultimately 
cease with the death or separation from the service of all the present 
employees. 

Part I of the plan proposes that each employee in the classified 
civil service shall, on reaching the age of retirement, receive an an- 
nuity equal to 1-^ per cent of his salary for each year of his service, 
or, as it may be differently stated, an annuity equal to 1-^- per cent 
of the total compensation received by him during his entire service. 
The theoretical basis of this provision is the assumption that three- 
quarters pay, or 75 per cent of his average salary, is a reasonable 
einnuity for a. person who has given his entire working life — that is 
about 50 years — to the service. Dividing 75 per cent by 50 years 
of service, l-l per cent for each year of service is obtained as a basis 
for computing annuities for any period of service. The annuity is 
created by the employee himself, who is required to set aside during 
each month of his continuance in the service a sum sufficient with 
compound interest, at 3-| per cent, to create that annuity at the age 
of retirement. These deductions from salary represent no fixed per- 
centage of salary, but vary with the age of entrance into the service, 
ranging in the case of employees to be retired at the age of 70 from 
4.3 per cent for the individual who enters the service at the age of 
20 to 11.2 per cent for the individual who enters at the age of 69. 
The amount deducted remains constant throughout the years of 
service, except in case of promotion or demotion, when it is increased 
or decreased accordingly on the basis of the employee's attained age. 

^This Is the bill indorsed by Tresident Taft in liis recent annual message. 

2 Since this report went to press Mr. Gillett has introduced a third Gillett bill (H. R. 
750, 62d Cong., 1st sess. ), a bill which expresses more nearly his personal ideas than did 
either of the two previous bills bearing his name. It contains no disability clause, but 
provides that the Government shall pay 4 per cent interest on the employees' savings 
rather than only 'Al per cent. 

3 This is practically a report also on the Austin bill (H. R. 729), which was introduced In 
Congress by Hon. Richard W. Austin after this report was in proof. The Austin bill is 
based on the same principles and embodies the best features of both the Gillett and Per- 
kins bills as to superannuation, providing in addition for an increase of salaries. 



30 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Each employee thus sets aside the amount of money necessary to create 
his own annuity only, without regard to the deposits of others, so that 
each one shall receive full return on the money which he thus accumu- 
lates. The funds necessary for the payment of the annuities are 
therefore furnished by the employees themselves, without expense 
to the Government, except that involved in the administration of 
the fund. The scheme is virtually a compulsory savings arrange- 
ment with the requirement that the savings in each case be sufficient 
for the purchase of an annuity at the age of retirement equal to 1^ 
per cent of the aggregate salary. 

In proposing that the Government pay 3^ per cent interest on the 
savings of the employees, it was not felt that the plan could be criti- 
cized on the ground of expense to the Government if provision were 
made in the bill for the investment of the fund in public bonds. In 
a long period of years these bonds would probably yield more 
than 3^ per cent interest, and provision is made that whatever is 
earned above the guaranteed rate of interest should be returned to 
the employees.^ 

On reaching the age of retirement, the employee may take his 
savings in one of three ways— in an annuity payable quarterly 
throughout life; in a smaller annuity payable quarterly throughout 
life, with the provision that in case of the death of the annuitant 
before he has received in annuities the amount of his savings, plus 
the interest credited thereon, the balance shall be paid to his legal 
heirs; and in one sum. The age of retirement varies, the service 
being divided for this purpose into three groups — the first group 
consisting of railway postal clerks who may retire at age 60, the 
second group consisting of letter carriers to be retired at age 65, 
and the third group comprising all the remaining branches of the 
service and to be retired at age 70. Since it is often to the advantage 
of the service that an old employee be retained because of some 
special knowledge or skill, provision is made for the retention of 
such an employee after the age retirement, for two years and for 
successive periods of two years each, on certificate of the head of 
the department in which he is employed that he is efficient and that 
his services are advantageous to the Government. Upon absolute 
separation from the service before reaching the age of retirement, 
whether by resignation or dismissal, and only in such event, the 
employee shall have the privilege of withdrawing his accumulations 
in one sum, or, if the amount to his credit be at least $1,000, he may 
use his savings to provide an annuity at his attained age. In case 
of the death of an employee while in the service, the amount to his 
credit shall be paid to his legal heirs. 

1 In the opinion of the author, the Government could well afford to guarantee at least 
4 per cent, and probably 5 per cent, as provided for in the Austin bill (H. R. 729). 



RETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 31 

The so-called Keep bill (11. R. 179G9) contained a provision for 
retirement after 20 years' service on an annuity of 1^ per cent of pay 
for each year of service in case of permanent disability. While a 
disability provision is recognized as very desirable in any scheme 
which aims at the improvement of the service, the provision was 
omitted from the two succeeding bills because no information as to 
its cost was available. An estimate of the cost of the limited pro- 
vision contained in the Keep bill has, however, been made by the 
author and is presented in this report, with a suggestion as to how 
that cost could be met, also without expense to the Government. This 
estimate is based on German tables of disability, which are so ex- 
tremely conservative, on account of conditions explained in the re- 
port, as to make the rates very high, and the estimate accordingly 
errs on the side of safety. It completely demonstrates, however, the 
feasibility of accepting the proposed disability clause as stated above, 
if the cost is met by the means suggested. A more liberal disability 
provision could doubtless be provided in time, when, through the 
operation of the plan, sufficient statistical data concerning the dis- 
ability of the civil employees had been accumulated to warrant the 
construction of more moderate disability rates, based on the Govern- 
ment's own experience.^ 

COST OF PUTTING PROrOSED PLAN IN OPERATION. 

Part II of the plan proposes, as set forth in the first bills, H. li. 
17969 and H. R. 18982, and in the Senate bill here proposed and 
discussed, that the Government shall pay all employees now in the 
classified civil service an annuity on arrival at age 70 equal to 1^ per 
cent of his salary for each year of service prior to the passage of the 
bill, and from that time on the employees shall provide their own 
annuities as arranged for in Part I of the plan. Part II, as set forth 
in the aforementioned bills, is thus kept consistent with the spirit of 
the plan proper, which is based on the principle that each employee 
shall provide his OAvn annuity, no younger employee being taxed for 
the benefit of older employees. While not in any way essential to 
the adoption of the plan proper (Part I), Part II is naturally in- 
cluded in the whole scheme for two reasons: First, considerations of 
justice and humanity dictate that provision be made for those already 
superannuated in the service and those so near superannuation as to 
lack time to accumulate, through their own savings, a fund sufficient 
to give them an annuity on retirement; secondly, the lack of some 
such provision for past services would delay the full benefit to the 

1 Since the above was written the second " Gillett bill" (H. R. 22013) has been 
favorably reported (Apr. 4, 1910), containing a disability provision which is much 
more liberal than that contained in the Keep bill. No estimate as to its cost has been 
made. 



32 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Government under the plan proper for a period of about 40 years, or 
until the majority of those now in the service had passed away. 

If Part I alone is adopted, the plan can go into eli'ect at once, with- 
out cost to the Government except that necessary to meet the ex- 
penses of administration. In that case, however, it would be a full 
generation before the public service would be benefited by a thorough 
elimination of the superannuated. Bearing in mind the fact that the 
estimated loss to the Government through superannuation in the 
civil service is about $1,200,000 a year, the Keep Commission, in sub- 
mitting to President Koosevelt its report of February 18, 1908, on 
superannuation in the civil service, recommended as good business 
policy the adoption of Part II along with Part I of the plan, since any 
measure which will relieve the Government of the evil of superannua- 
tion at a cost of $1,200,000 or less is plainly a saving of public funds. 
It is apparent also that, even if the adoption of Part II should cost 
considerably more than $1,200,000 a year for a while, it would still 
be a wise expenditure of public funds, and a means of economy, for 
such appropriations would be practically negligible in 50 years, and 
cease completely by the time that all present employees are dead, 
whereas, under present conditions, the Government's loss from ineffi- 
ciency of its aged employees is a steady, permanent, and growing 
annual loss. 

What it will cost, or seem to cost, to put the plan in immediate 
operation by adoption of Part II depends upon the number of em- 
ployees that Congress may decide to include in its benefits. It might 
seem desirable to limit the operation of the plan at the start to the 
District of Columbia since superannuation there is much greater 
than elsewhere in the service. Census Bulletin 94 (p. 49) shows 
that in the District of Columbia practically 1 Government em- 
ployee in 14 is at least 65 years of age, while elsewhere the correspond- 
ing figures are but about 1 in 34. Over 15 per cent of the employees in 
the State, War, and Navy Building and in the Treasury proper, over 
14|- per cent in the War Department, and over 11 per cent in the 
Interior Department are more than 65 years of age. Restriction of 
the plan to the civil service of the District of Columbia — that is, to 
23,254 employees as against 170,228 employees in the whole service — is 
to be commended also on the general principle that it is always de- 
sirable to proceed slowly and cautiously in the inauguration of any 
new measure. Other branches of the service could be included 
gradually, as seemed desirable, and as confidence in the wisdom of 
the plan increased. 

Two calculations of the cost of paying annuities for back services 
have been made. The first calculation included 103,030 classified 
employees, while the second included 170,228 employees. The in- 
crease in the number of employees is due to the growth in the civil 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 33 

service during the interval which elapsed between the two reckonings, 
and to the fact that a number of groups of employees were included 
in the second calculation that were omitted from the first. It was 
the intention to include in this second calculation all groups of em- 
ployees that might possibly be embraced in any plan of retirement. 
The first calculation was made under the direction of the Keep Com- 
mission and was based on Census Bulletin 12, covering the classified 
employees as of June 30, 1903. The second calculation was based 
on the cards used in preparing Census Bulletin 94, covering the 
classified employees as of June 30, 1907. 

According to the first calculation, the total maximum sum required 
for putting into effect the provisions of Part II of this plan was 
$66,985,778, or about $725,000 in the first year, increasing gradually 
and reaching a maximum of $1,746,561 about 30 years after the pas- 
sage of the bill. After the thirty-third year the amount required 
each year drops off very rapidly until in about 50 years, when all the 
present employees are dead, the plan would be self-sustaining. 
According to the last calculation, which embraces 67,361 more em- 
ployees, and is based on earlier ages of retirement and slightly more 
conservative mortality tables than the first estimate, the total maxi- 
mum sum required to pay annuities for back services would be 
$130,581,273, or about $1,120,000 the first year, increasing gradually 
and reaching the maximum of $3,495,000 about 28 years after the 
passage of the bill, and then dropping off gradually to nothing by 
the time all of the present employees are dead. It should be under- 
stood, however, that these calculations are necessarily exaggerated, 
since they make no allowance for the savings in annuities for back 
services that will be made through resignations before the age of 
retirement, which may be fairly estimated to equal the mortality, and 
because they are based on present salaries instead of average salaries, 
and because they make no allowance for retention of employees in the 
service past the age of retirement. The actual cost, therefore, of 
annuities for back services will be much less than these figures — 
probably not more than half as great, or about a million dollars a 
year for 50 years, which is equivalent to an increase in the Govern- 
ment pay roll of a little over one-half of 1 per cent. It should be 
remembered also that all things are only large or small by compari- 
son, and that even a million dollars a year for 50 years is a small sum 
compared with a permanent expenditure of a million two hundred 
thousand dollars a year, which is the sum computed to be lost annu- 
ally through the inefficiency of aged employees. The plan can, in 
other words, be put in immediate operation without increasing the 
annual expenditures of the Government by one dollar. One needs to 
be no profound mathematician to see that by paying the annuities 
for back services and thus establishing a self-supporting plan of 
74196°— S. Doe. 745, 61-3 3 



34 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

retirement, which would do away with that annual loss, the Govern- 
ment would effect an immediate and permanent economy. There 
would be a small saving the first year, a larger saving the second 
year, and so on, until by the time all present employees are dead the 
cost to the Government of superannuation would have ceased. 

HOW THIS COST MAY BE MET.* 

If annuities are paid for services rendered prior to the adoption of 
the plan, the obligation for their payment would seem to rest with the 
Government, which has had the benefit of those services. The sug- 
gestion was made, however, at the hearings held in the spring of 1908 
that the plan proper might be put in operation without cost to the 
Government by imitating the practices of the French Government in 
raising the money to defray the expenses incident to the retirement 
of civil employees. This is done by making deductions from the sal- 
aries of new entrants and deductions from promotions. This idea 
was embodied in the third bill (H. R. 21261) introduced in Con- 
gress in the spring of 1908 and in the first bill (H. R. 28286) favor- 
ably reported by the House committee. According to the provisions 
of these two bills, a fund for the payment of annuities on services 
rendered prior to the passage of the bill would be created from two 
sources, (1) by a deduction for six months — that is, during the pro- 
bationary period — of one-fifth of the monthly pay of persons newly 
entering the service, and (2) by deductions from promotions of 25 
per cent of the net annual increase, to be withheld during the first 
three months after promotion. This proposal was held by many to 
be open to serious objection as fundamentally unjust, since it requires 
contributions which are never returned to the contributor and im- 
poses a tax on efficiency. It is certainly contrary to the spirit of the 
plan itself, which is based on the principle that each employee shall 
provide for his own annuity and not become in any way a tax on 
fellow employees. Such a fund, however, might be justly used to 
defray the expense of a provision for disability as previously men- 
tioned, since the contributions would not then be diverted from the 
use of the contributors, as all would share in the protection furnished 
by such a provision. 

In the interval which elapsed between the favorable reporting of 
the last two House bills — ^between February 23, 1909, and April 4, 

^ How the cost of putting the plan Into operation is to be met is a matter of bookkeep- 
ing. President Taft's recommendation in his annual message of December 6, 1910, that 
the annuities for back services shall be paid out of the salaries appropriated for the posi- 
tions vacated by retirement, and that the difference between the annuities thus granted 
and the salaries may be used for the employment of efficient clerks at the lower grades, 
is a practical solution of the difficulty and avoids a call for increase of appropriation. 
President Taft's recommendation is based on statistics collected in the Treasury Depart- 
ment, the Post Office Department, and the Department of Commerce and Labor. For 
details, see pp. 182-185. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 35 

1910 — the House Committee seems to have become convinced that it 
would be unjust to require the younger employees to provide for the 
retirement of the older ones, and the last bill favorably reported 
(H. R. 22013) accordingly agrees in principle with the bill here pro- 
posed and discussed (Senate bill 1944) in providing that annuities 
for back services be paid by the Government. 

DIFFERENCE BETWEEN PERKINS AND GILIiETT BILLS. 

It thus appears that the two bills, S. 1944 and H. E. 22013, which 
last had the attention of the Committees on Civil Service in the 
Senate and the House, agree not only on a definite plan of retiring 
civil employees, but also on the method by which it is to be put in 
immediate operation. The only material differences between them 
are two matters of detail. The House bill limits the amount payable 
by the Government for past services to $600 a year, and the Senate 
bill allows the full annuity for such services that would now be to the 
credit of the individual had the proposed plan always been in opera- 
tion. The House bill, on the other hand, makes more liberal pro- 
vision than does the Senate bill for retirement of employees in case 
of disability. 

STATISTICAL DATA CONTAINED IN THIS REPORT. 

This briefly is an account of the retirement plan which has been 
considered by the Committees of Civil Service in the Senate and the 
House and favorably reported by the House Committee. The Secre- 
tary of Commerce and Labor was requested by these committees at 
the close of the first session of the Sixtieth Congress to authorize the 
Bureau of the Census to prepare new tables, based on the most recent 
census of the executive civil service, showing the cost of annuities 
for back services, together with other data bearing on the plan. 
In this report, accordingly, are discussed the principles underlying 
the proposed savings and annuity plan, the mathematical basis of the 
plan, including the tables of mortality and interest on which the 
annuities and the necessary deductions from salary are computed, the 
minor provisions relating to separation from the service by reason of 
retirement, resignation, dismissal, disability, or death, the cost of 
paying annuities for back services as shown by the calculations made 
in the Bureau of the Census, and the provisions in the bill for invest- 
ment of the fund created by the savings of the employees. 

The Government Actuary of New Zealand, who devised the plan 
adopted there three years ago, made calculations to determine the 
probable cost of his plan, which contemplates a perpetual subsidy 
from the Government, but he carried his figures only through 
the first year and gave only an estimate as to the probable ultimate 
amount annually necessary. In calculating the cost of establishing 



36 EETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

the plan proposed in the Perkins bill (S. 1944) , the computations have 
been carried through 78 years, to the time when every member of the 
present civil service will be dead and the plan self-supporting, so that 
the figures quoted are a more than safe maximum. Calculations 
covering a period of 78 years have also been made to show the cost 
of establishing the plan proposed in the Gillett bill (H. R. 22013). 
Finally, calculations have been made covering a period of 35 years to 
show the cost of a straight civil pension conferring the benefits of 
the Perkins bill and paid wholly from the Public Treasury. 

When not otherwise stated, all reference made in this report to " the 
bill " is understood to apply to the bill proposed and discussed in this 
report, S. 1944. 



I 



CHAPTER I. 



PRINCIPLES UNDERLYING PROPOSED PLAN. 

The plan described in this report and embodied in the accompany- 
ing bills ^ rests on four fundamental principles. 

FOUR FUNDAMENTAL PRINCIPLES. 

They are as follows : 

(1) The funds necessary for the payment of annuities on services 
rendered after the adoption of the plan should be supplied by the 
employees themselves, without expense to the Government other than 
possibly the payment by the Government of a reasonable rate of inter- 
est on the money held by it and the payment of salaries to the clerical 
force required to keep the accounts and distribute the funds. 

(2) Each employee should set aside the amount necessary to cre- 
ate his own annuity, without regard to the deposits of others, so that 
each employee may receive full return on the money set aside by him. 
It is important that the amount set aside should be sufficient to buy an 
adequate annuity, else the condition of the superannuated employee 
will be little improved, and the aid of the Government ultimately 
be solicited. 

(3) The annuities to be paid employees on retirement should be 
graduated according to length of service and amount of salary and 
in such manner that the monthly deposits required from employees 
for the creation of such annuities shall be in no case excessive. 

(4) The fund necessary for the payment of annuities on services 
rendered prior to the adoption of the plan should be paid by the 
Government rather than by any form of tax upon the younger 
employees. 

It will thus be seen that the plan divides itself naturally into two 
parts, the first part, or plan proper, providing annuities for em- 
ployees rendering services from now on, and the second part provid- 
ing annuities for employees who rendered service prior to the adop- 
tion of the plan and are still members of the civil service. 

»See pp. 210-225. 

87 



38 EETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 
CRITICISM OF PLANS PREVIOUSLY PROPOSED. 

These principles were adopted as essential to the construction of a 
correct plan after careful study of the various plans which have been 
brought to the attention of Congress during the past 20 years, and 
those which have been tried by other Governments. These may be 
divided generally into two classes. 

First, noncontributory plans proposing the payment of annuities to 
the superannuated out of the Federal Treasury ; and 

Second, contributory plans proposing a uniform deduction of a 
given per cent — more or less adequate for the purpose in view — from 
the salaries of all employees to create a general fund out of which 
to pay annuities to retiring employees. This second class may prop- 
erly be subdivided into two divisions: 

(a) Those proposing a uniform deduction of a given per cent from 
all salaries and the payment of annuities based upon length of serv- 
ice; and 

(b) Those proposing a uniform deduction of a given per cent from 
all salaries and the payment of a uniform annuity regardless of 
length of service. 

CIVIL PENSIONS UNPOPULAR AND UNSOUND. 

The first group of plans — those proposing the payment of annui- 
ties out of the Federal Treasury — are, of course, simply civil pen- 
sions, such as England and Germany maintain for the benefit of their 
civil employees. It is true that arguments in favor of a civil pension 
are frequently heard in certain quarters in this country. It has 
become the custom, in recent years, for large business institutions to 
pension their old and worn-out employees. Many employers declare 
that it is good business policy, since it results in creating among their 
subordinates a sense of loyalty and an interest in the business, as well 
as a feeling of permanency in their employment, which are of benefit 
to the employer as well as the employee. Many of the most impor- 
tant railroads of the country have adopted a system of retirement for 
superannuated employees. It would seem as if a policy that the 
railroads and other great industrial enterprises of the country have 
found profitable might safely and wisely be followed by the Govern- 
ment. Keasoning thus, many have contended that what the public 
service needs as an adjunct to the civil-service law is a civil pension 
list. Passing from the example of the railroads and the great corpo- 
rations, they have pointed to the pensions granted by the Govern- 
ment to those who have performed military service, and have argued 
that the civil employee was as deserving of that recognition as is the 
soldier or sailor. It has been shown that every great nation of the 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 39 

world, except the United States alone, provides some kind of pension 
for the superannuated civil employee, and some of them even provide 
a pension for the widows and orphans of such employees. Again 
and again the question is asked in all sincerity, and often by people 
who have wide knowledge of conditions among officeholders and 
among employees of private corporations in this and other countries, 
Why should not the United States Government grant a pension to 
its superannuated civil employees, as it does to its war veterans, as 
other nations do to their employees in the civil as well as military 
and naval branches of the public service, and as the great corpora- 
tions do to their old and faithful servants? 

On the other hand, there is no doubt but that the people of the 
United States would generally look with disfavor on such a proposal. 
The popular objection seems to be based mostly on a well-grounded 
fear that a civil pension is bound to become enormously expensive, 
especially in a Eepublic. That there are also sound economic reasons 
why the adoption of any plan that is at all comparable to a civil pen- 
sion would be unwise for the State and disadvantageous to the em- 
ployees is not so well understood. Careful study of the history of 
civil pensions in other lands gives conclusive proof, however, that the 
pension payable out of the Public Treasury is not only costly for the 
Government — that is, for the taxpayers of the country — but that it is 
demoralizing to the service, and finally that, contrary to the general 
impression, it works a real hardship on the employees themselves. 

The Civil Pension is Expensive. 

A civil pension is bound to become enormously expensive, especially 
under a republican form of government, where the lawmakers must 
depend on popular favor for election. The difficulty of controlling 
legislation affecting pensions is well illustrated in the case of our own 
military and naval pensions. Although the United States makes 
provision for very few kinds of pensions,^ its outlay for pensions is 
notoriously great. Since the Civil War it has paid out about four 
billions of dollars in pensions to war veterans and their dependents. 
It is not likely that the people of the country generally would wel- 
come in addition a civil pension list with all its possibilities of abuse. 
Even were the list to be of most modest dimensions at the time of its 
establishment, it would be sure to grow in length and increase in cost- 
liness as time went on, for there is a constant tendency, under a pen- 



1 The only persons pensioned by the United States Government, besides war veterans 
and their dependents, are officers and enlisted men of the Army, Navy, and Marine Corps, 
and commissioned officers, warrant officers, and enlisted men of the Revenue-Cutter 
Service, Army and Navy paymasters' clerks, and judges of the Supreme Court and of the 
United States courts. It is customary to pension the widows of deceased Presidents and 
to grant a year's salary to the widows of deceased Members of Congress, but this is done 
by special act of Congress and not under any general statute. 



40 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

sion system, to extend its benefits to new classes of public servants. 
Such irresistible pressure would be brought to bear on Congress to 
include one class of employees after another under the system that 
ultimately all members of the executive civil service, classified and un- 
classified, to the number of about 300,000, would be declared pen- 
sionable. While the country as a whole looks with antagonism on 
any increase of expenditures for pensions, yet everyone knows that 
the individual citizen with a claim usually feels justified in urging 
it upon Congress. 

COST OF CIVIL PENSIONS IN ENGLAND. 

It is hardly to be expected that, if the United States were to grant 
pensions to its civil employees, its experience would be any more 
favorable than that of England has been. When the Eidley Com- 
mission was appointed in England in 1886 to inquire into " the con- 
dition of the civil establishments," a subject which interested the 
members of the commission particularly was the cost of superannua- 
tion. Valuable data on this subject were supplied by Sir Herbert 
Maxwell and Mr. Frank Mowatt, two prominent officials of the 
Treasury. Sir Herbert showed the growth of the civil-service vote 
for superannuation from the years 1833-34 to 1868-69 by the follow- 
ing table : ^ 



Years. 


Amount. 


Years. 


Amount. 


Years. 


Amount. 


1833 34 


$272,363 
286, 432 
322, 250 
359, 659 
386, 079 
404, 951 
427, 206 
442, 008 
399, 053 
408, 786 
395, 646 
417,546 


1845-46 


$390, 780 
393,213 
424, 359 
375, 694 
535,884 
529,319 
526, 580 
658, 725 
647,147 
660, 734 
674, 541 
713, 122 


1857-58 


$777,871 


1834-35 


1846-47 


1858-59 


792, 699 


1835-36 


1847-48 


1859-60 


812,652 


1836 37 . .. 


1848-49 


1860-61 


864, 840 


1837 38 


1849-50 


1861-62 


900, 984 


1838 39 . . - 


1850-51 


1862-63 


898,872 


1839 40 


1851-52 


1863-64 


858, 752 


1840-41 


1852-53 


1864-65 


902, 585 


1841 42 


1853-54 


1865-66 


872, 963 


1842 43 


1854-55 


1866-67 


904, 624 


1843 44 


1855-56 


1867-68 


958,871 


1844-45 


1856-57 


1868-69 


1, 337, 640 











The cost of superannuation in the Kevenue Departments, the 
Admiralty, the War Office, and the Royal Irish Constabulary was not 
included in the civil-service vote after 1832. In 1868-69 a number of 
noneffective charges were transferred from various effective votes 
to the superannuation estimate. After 1869-70 the appropriation 
accounts, as given by Sir Herbert Maxwell, were as follows : ^ 

1 Second Report of Commission on Civil Establishments. 18S8. Appendix, p. 422. 



RETIREMENT OP SUPERANISri) ATED CIVIL-SERVICE EMPLOYEES, 41 



Years. 


Superan- 
nuation 
allowances. 


Compensa- 
tion 
allowances. 


Compas- 
sionate 
allow- 
ances. 


Compensa- 
tion and 
compas- 
sionate 

allowances. 


Gratui- 
ties. 


Total.' 


1869-70 


$802,530 
851,190 
912, 177 
948, 724 
1,014,023 
1,050,984 
1,089,449 
1,106,856 
1,136,269 
1,160,140 
1,178,837 
1,238,018 
1,203,450 
1,202,536 
1,279,734 
1,321,269 
1,356,736 


(.') 

(2) 
(2) 
C) 
(') 

$1,065,150 
977, 402 
962, 599 
938,904 
905, 140 
891, 791 
892, 297 
876, 160 
851, 535 


(») 
(^) 

(') 
m 

$14,264 
15, 349 
15, 680 
17, 320 
18, 824 
18, 984 
19,850 
19, 266 
17, 568 


$818, 467 

971,626 

1,052,809 

1,055,422 

1,061,826 

1,030,224 

1,002,752 

1,029,425 

1,079,414 

992,751 

978, 279 

956, 224 

923,964 

910, 775 

912,147 

895, 426 

869, 103 


$5,742 
77,226 
25,402 
28, 200 
18,483 

9,392 
11,373 

6,346 
14, 132 
12,565 
13,592 
14,089 
11,782 
11,816 
12, 687 
11,972 
13,315 


$1,622 798 


1870-71 


1,900,042 
2,000,438 
2,032,406 
2, 094, 332 
2, 090, 600 
2, 103, 574 
2, 142, 627 


1871-72 


1872-73 


1873-74.. .. 


1874-75 


1875-76 


1876-77 


1877-78 


2,229,815 
2, 165, 456 
2,171,194 


1878-79 . . 


1879-80 


1880-81 


2, 208, 330 
2,199,449 
2, 189, 735 


1881-82 


1882-83 


1883-84 


2,204,568 
2,228,667 
2,239,155 


1884-85 







1 The sum of the items does not equal this total; the figures are, however, the equivalents of the English 
money, as computed by the Bureau of Labor. 

2 Not separately reported. 

For the year 1887-88 Sir Herbert stated that a vote of £476,082 
($2,316,853) was taken in the civil-service estimates for superannua- 
tion and retired allowances, besides £1,412,622 ($6,874,525) provided 
for superannuation in the estimates of the several departments. Thus 
the total sum voted for superannuation of public servants (exclusive 
of military and naval pensions) was £1,888,704 ($9,191,378). It is 
not clear from Sir Herbert's statement whether this sum included 
allowances to the Royal Irish Constabulary and the Dublin Metro- 
politan Police or not, but comparison with Mr. Mowatt's statement of 
the cost of civil pensions for the following year, 1888-89, would seem 
to indicate that it did. Mr. Mowatt's statement shows that the total 
sum voted for the superannuation of public officers in that year 
amounted to £1,907,863 ($9,284,615), including the Royal Irish Con- 
stabulary and Dublin Metropolitan Police, and to £1,581,992 ($7,698,- 
764) excluding them. Besides this great sum voted by Parliament 
for that year, civil pensions to the amount of £345,517 ($1,681,458) 
were granted out of the Consolidated Fund, which would make a 
total expenditure of £2,253,380 ($10,966,073) for civil pensions.^ 

The increase in the cost of pensions did not cease in 1888 with the 
dissolution of the Ridley Commission. Fourteen years later, in 1902, 
when the Courtney Commission was appointed " to inquire whether 
it is possible so to amend the existing system of superannuation of 
persons in the civil service of the State as to confer greater and more 
uniform advantages upon those to whom it applies without increasing 
the burden which it imposes on the taxpayer," it was found that the 
pension charge had continued to increase steadily from year to year, 
the amount of the original estimate having risen from £1,592.597 
($7,750,373) in 1888-9 to £2,035,360 ($9,905,079) in 1902-3. Mr. 
T. L. Heath, a principal clerk in the Treasury, presented to the com- 

1 See Civil Service Retirement, Great Britain and New Zealand, S. Doc. 290, 61st Cong., 
2d sess., p. 133. 



42 EETIEEMENT OF SUPERANNUATED ClYlL-SERVICE EMPLOYEES. 

mission the following figures to show the amount of the original 
estimates for pensions during each of the years that had elapsed 
since the Kidley Commission reported in 1888. 

Superannuation and retired allowances — original estimates. 



I 



al- 



Superannuation 
lowances 

Compensation allow- 
ances 

Gratuities 

Compassionate allow- 
ances.. 

Prison oflBeers' com- 
mutations 

Compassionate fund. . 

Middlesex registry, 
pensions, etc 

Mercantile marine, 
pensions, etc 



Total 

War office 

Admiralty 

Customs 

Inland revenue 

Post office, etc 

County court officers, 
Ireland 



Total. 



1888-89 1889-90 1890-91 1891-92 1892-93 1893-94 1894-95 1895-96 



$1, 489, 568 

756,896 
9,733 

16,507 

36, 499 



2,309,203 
867,697 

1,609,838 
964,905 

1, 138, 975 
854,377 

5,378 



7,750,373 



$1,533,911 



735, 508 
9,733 



15,266 



40,392 

3,407 



$1,543,873 

717,337 
14, 599 

12,852 

43, 798 
3,407 



2,338,217 
864, 290 

1, 636, 117 
957,854 

1,096,593 
865, 634 

5,377 



7,764,082 



2,335,866 
791, 293 

1,609,352 
972, 531 

1,044,083 
886, 287 

5,378 



7, 644, 790 



$1,637,422 

673,767 
13,626 

10,940 

45,988 
3,407 



2,385,150 
779, 127 

1,553,387 
966, 078 

1,018,889 
931,964 

5,377 



7,639,972 



$1,633,971 

640,203 
9,733 

8,594 

47,692 
3,406 



2,343,599 
749,928 

1,526,621 
949,094 

1,025,863 

1,013,269 

5,377 



7, 613, 751 



$1,793,602 

600, 920 
9,733 

10,040 

33,301 
3,407 

2,711 



$1, 871, 797 

553, 467 
9,733 

14,220 

31,613 

3,406 

2,711 



2, 453, 714 
759, 661 

1,519,321 
957,956 

1,019,001 

1,066,153 

5,377 



17,781,392 



2, 486, 947 
801,513 

1,519,321 
931,380 

1,028,574 

1,117,606 

5,377 



17,888,008 



$1,977,215 

537, 140 
9,733 

14,010 

27,296 
3,407 

2,711 



2,571,512 
824,385 

1, 544, 140 
916, 021 

1,053,602 

1,159,633 

5,377 



>8, 071, 475 



Vote. 



1896-97 



1897-98 



1898-99 



1899-1900 



1900-1901 



1901-2 



Superannuation al- 
lowances 

Compensation al- 
lowances 

Gratuities 

Compassionate al- 
lowances 

Prison officers' com- 
mutations 

Compassionate fund 

Middlesex registry, 
pensions, etc 

Mercantile martae, 
pensions, etc 



Total 

War office 

Admiralty 

Customs 

Inland revenue 

Post office, etc 

County court offi- 
cers, Ireland 



$2,071,469 

500, 558 
12, 166 

17,821 

23, 384 
3,407 

2,015 



$2, 134, 345 

459,835 
12, 166 

15,013 

17,729 
3,407 

1,723 



$2,171,418 

422, 909 
12, 166 

14, 755 

13, 490 
3,406 

1,723 



$2,244,771 

395,033 
"12, 166 

34, 980 

9,402 
3,407 

1,324 

59, 186 



$2, 263, 312 

381, 641 
12, 166 

19, 150 

5,631 
3,406 

1,324 

56, 266 



$2,387,057 

354,014 
12, 166 

33, 910 

3,849 
3,407 

1,324 

52, 183 



$2, 523, 266 

330,061 
12,166 

34, 280 

2,350 
3,406 

1,324 

49, 643 



2,630,820 
845,798 

1, 578, 693 
896,288 

1,040,112 

1,224,699 

3,105 



2, 644, 218 
853,097 

1, 593, 292 
900,750 

1,054,892 

1,317,162 

3,105 



2, 639, 867 
862, 830 

1, 593, 292 
908, 517 

1, 145, 224 

1,483,548 



2,760,269 
893,976 

1,661,910 
935, 249 

1,223,063 

1,717,821 



2,742, 

875, 970 
1,671,643 

941, 940 
1,271,018 
1,863,378 



2,847,910 
917,364 

1,657,530 
933,570 

1,271,621 

1,963,876 



2, 956, 496 
939, 234 

1, 703, 762 
934, 280 

1,310,510 

2,059,065 

1,732 



Total. 



1 8, 217, 499 



'8,364,793 



I 8, 631, 555 



19,256,983 



1 9, 338, 453 



19,538,335 



9,905,079 



1 The sum of the items does not equal this total; the figures are, however, the equivalents of those in the 
original, as computed by the Bureau of Labor. 

It will be noted that the return for 1902-3 showed that the charge 
for civil pensions, gratuities, compensation allowances, and all those 
allowances which came within the scope of the Courtney Commis- 
sion's inquiry was £2,035,360 ($9,905,079), exclusive of pensions 
awarded under separate acts to the Royal Irish Constabulary and the 
Dublin Metropolitan Police, which brought the total up to something 
like £2,500,000, or over $12,000,000.^ 

1 See Civil Service Retirement, Great Britain and New Zealand, S. Doc. 290, 61st Cong., 
2d sess., p. 149. 



EETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 43 

It should be remembered also that this great and growing sum is 
paid annually to a civil service of not one-half the size of our classified 
service. It was stated in 1903 that the amount of money paid for 
civil pensions in England was from 16 to 20 per cent — ^varying with 
the department — of the amount of salaries.^ On that basis, since the 
Government pay roll of the United States is upward of $200,000,000 
a year, a civil pension in this country similar to that in England 
would cost from $30,000,000 to $40,000,000 a year, and there would be 
no likelihood of its ever growing less, but quite the contrary. 

ABUSES TO WHICH PENSION SUPPORTED WHOLLY OE IN PART FROM PUBLIC TREASURY 
IS LIABLE, WHICH MAKE IT COSTLY. 

It will be noted that the English superannuation estimates include 
large sums under the head of "gratuities," "compensation allow- 
ances," and " compassionate allowances," as well as superannuation 
allowances. This is an indication of the abuses to which a pension 
system supported wholly or in part out of the public treasury is 
always liable. 

Q-ratuities to employees leaving before retirement age. 

The pension charge is never limited to the payment of annual 
allowances to those who have reached the legally pensionable age. 
Complaints are always lodged in behalf of a large number of those 
who retire before that age for one reason or another. It comes to be 
generally customary, under any such system, that after an employee 
has held office a number of years, usually 10, he is held to have a 
vested right in the pension toward which those 10 years will count 
if he remains in the service, and if he leaves the service after 10 
years and before reaching pensionable age, it is argued that he should 
be given either a pro rata portion of that pension or a gratuity cor- 
responding to the surrender value of his pension. It can easily be 
seen how great an increase to the pension charge this custom of 
granting gratuities might cause and how difficult it must be to refuse 
or control the bestowal of such recognition on an official serving even 
a short time under a pension system. These gratuities are known to 
have been a source of great abuse in other countries, large numbers 
of employees retiring in the prime of life to engage in private busi- 
ness, after having held public office only long enough to entitle them 
to the privilege of an allowance. 

Such a system once established, however, the rights of the em- 
ployees are always insisted upon under it and the hardship entailed 
on the taxpayers is likely to be ignored. The tenderness exhibited for 
every person who has served the State even a very few years strikes 
the American observer as highly absurd when it is borne in mind that 

1 See Minutes of Evidence to Report of the Royal Commission on Superannuation in 
the Civil Service, London, 1903, p. 7. 



44 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

such consideration can only be shown at the expense of the general 
public. When, for instance, the superannuation act of 1909, modifying 
the civil pension system of England, was under discussion in the House 
of Commons, the Financial Secretary to the Treasury, Mr. Hobhouse, 
who had charge of the bill, explained its intent and purpose, laying 
emphasis on the fact that the bill made much more liberal provision 
for the civil servants than they had ever hoped to obtain, and criticiz- 
ing another scheme previously proposed, as defective, because " there 
was no provision made for those who retired from the civil service 
before they had completed 10 years' service, and thus became pen- 
sionable, except that gratuity of a month's pay for every year, which 
really was quite inadequate." ^ To the ordinary self-reliant person 
not corrupted by contact with a pension system it would seem as if 
the State had treated an employee more than generously in giving 
him a bonus, at public expense, of one month's pay for every year of 
service when his devotion to the State had not been sufficient to hold 
him through one decade. If he had been properly compensated dur- 
ing his period of service, why should the State call on the taxpaying 
public, already heavily burdened, to make him a parting gift — a 
purse of $800 to the hundred-dollar-a-month clerk who took his leave 
after eight years' service? And yet Mr. Hobhouse characterized 
such recognition as " really quite inadequate." 

Compassionate allotoances to dependents. 

" Compassionate allowances " for widows and orphans, where the 
pension system does not make definite provision for pensioning them, 
are sure to be allowed in time. The payment of gratuities to relatives 
of deceased officers was characterized by the actuaries employed to 
value the retirement fund of New South Wales, Australia, as " re- 
pugnant to the principles of a superannuation scheme." It leads 
to abuses of air kinds, but not many officials engaged in the adminis- 
tration of a pension fund would be likely to take the same view when 
considering the case of dependents " in necessitous circumstances," 
especially if the latter can be relieved out of the public treasury. 

Pensions increased on account of professional qualifications. 

One way in which the pension charge in England and Canada has 
been increased is by a special show of consideration for members of 
the civil service who have " professional or other peculiar qualifica- 
tions not ordinarily to be acquired in the public service " — to quote 
the English superannuation act of 1859. In such cases it has been 
customary to add " a number of years not exceeding 20 " in comput- 
ing the amount of superannuation allowance which may be granted 

» See Civil Service Retirement, Great Britain and New Zealand. S. Doc. 290, 61st 
Cong., 2d Bess., p, 176. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 45 

to the employee, a practice that has undoubtedly helped to swell the 
annual vote for pensions. 

Retirement on " abolition terms." 

Probably the greatest abuse of pension systems has come through 
provision for retirement on what are spoken of as " abolition terms ; " 
that is, provisions for compensating officers removed from the pub- 
lic service in consequence of the abolition of the oifices in which they 
are employed. The defense advanced for such a practice is the theory 
that by the abolition of offices "improvements may often be facili- 
tated in the organization of a department by which greater efficiency 
and economy can be effected." It would seem, however, as if places 
could usually be found for the incumbents of abolished offices in 
other departments until such time as they reached pensionable age 
and could be legitimately retired. The opportunity of retiring indi- 
viduals on abolition terms presents a temptation, however, which 
politicians are not usually strong enough to resist, and a pension 
system maintained under a form of government characterized by a 
shifting of power from one political party to another is bound to 
become at times the sport of political necessities. Such has been the 
case in England under a straight pension system, and in Canada and 
Australia under contributory schemes in which the Government has 
been responsible — as it must always be — for the deficit. 

ABUSE OF ABOLITION TERMS IN ENGLAND. 

The hearings before the Eidley Commission in England in 
1886-1888 abound in criticism of the custom of retiring officials on 
abolition terms at the expense of the State. Complaint was made, too, 
that the retirement of a particular individual was sometimes rightly 
desired by the head of an office on the ground of incompetency, rather 
than difference of political faith, but that there was no way to get 
rid of him except by resort to the awkward but effectual device of 
abolishing the office which he held and retiring him on a pension. 
While this procedure might simplify the conduct of his office for the 
head of a bureau, it was not fair to the taxpayers or to the other 
clerks in the same office to thus reward incompetency. 

ABUSE OF ABOLITION TERMS IN CANADA. 

The history of superannuation and retirement legislation in Canada 
o-ives even more striking evidence of the way in which a system for the 
retirement of superannuated Government employees in which con- 
tributions are collected into a common fund and which depends on 
the Government to supply a deficit, and to that extent is a straight 
pension system, can be grossly abused for party purposes. Study 
of the parliamentary debates carried on^ year after year, until 
the superannuation act of 1870 was superseded by the retirement act 



46 RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

of 1898, shows conclusively that the change was brought about chiefly 
through the persistent agitation of certain members of the Liberal 
Party, who contended that the Conservative Party had administered 
the superannuation scheme for party ends and purposes at an enor- 
mous annual cost to the country. The point they brought out with 
special emphasis was that any measure which puts into the hands of 
a ministry the power to eliminate from public office an individual 
whose political faith differs from that of the ruling powers, or whose 
place is wanted for one of more congenial views, by retiring him, at 
public expense, on a pension is a bad and dangerous law. It was 
shown that men had been superannuated in the prime of life, at the 
ages of 31, 42, 45, 50, etc., and were drawing pensions from the people 
while other men were performing the duties those superannuated 
were well able to discharge, that the evil was growing, the number 
of those retired before the legal age increasing every year, and the 
pension charge on the State growing annually heavier. The more 
earnest opponents of the system did not attempt to deny that the 
opposition, when placed in power, would probably behave as badly 
as did the existing Government, but attacked the law as bad in prin- 
ciple, whoever might administer it. 

It was shown that the country with its little service of less than 
5,000 people had suffered a net loss in 22 years of over two and a 
half million dollars, that there were many individuals under the age 
of 50 to be found on the superannuation list and a considerable 
number even below the age of 40, some having been superannuated 
when they had served less than 10 years (the minimum period on 
which an application for superannuation could be made) by taking 
advantage of the clause in the law which allowed years to be added 
to the term of service for reasons such as efficient service, technical 
knowledge, and so on. It was not, however, until the question was 
made a party issue and the Liberal Party came into power, for the 
first time in 18 years, on popularity given them largely by their de- 
nunciation of these abuses, that a serious attempt was made to correct 
them. The superannuation system was accordingly closed in 1898 
to all future entrants to the service, and a system of compulsory 
savings was established in its stead. This system, because of certain 
inherent faults which will be explained later on, has not been found 
satisfactory, but the agitation which led to the change is highly 
instructive.^ 

ABUSE OF ABOLITION TERMS IN NEW SOUTH WALES, AUSTRALIA. 

No less instructive as to the way in which the cost of a retirement 
system may be increased by the abuse of " abolition terms " is the 
experience of the colony of New South Wales, Australia, where a 
superannuation fund based on an unsound contributory plan of 

1 See forthcoming report, Civil Service Retirement, Canada, by Herbert D. Brown. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 47 

retirement was established in 1881, speedily became insolvent, and was 
abandoned after only 11 years' trial, leaving the Government no 
choice except to assume the obligations of the fund. The first investi- 
gation of the fund, only five years after its establishment, showed a 
deficiency due largely to the fact that, in order to facilitate a scheme 
of reorganization and retrencliment, the Government had dismissed 
from the service a considerable number of employees who were 
neither incapacitated nor yet of pensionable age. Some of these were 
rewarded with gratuities which were paid by the Government and 
others were allotted retiring allowances drawn from the fund in ac- 
cordance with a provision in the law that when the services of any 
officer were dispensed with in consequence of the abolition of his office 
he might be retired upon a superannuation allowance. As many of 
those thus forced into retirement were in the prime of life, some even 
as young as 30 years of age, it is apparent that the cost of pensioning 
them was very great. This policy was continued by an obstinate 
Government year after year, despite the warnings of the actuaries. It 
was computed in 1901 that the amount paid to pensioners retired 
on abolition terms was at least $2,092,595, or nearly half the total 
pension payments, which had been $4,771,267. Established in the 
first place on an unscientific basis, the fund was quite unable to 
bear the inroads made on it by the policy of pensioning whole offices 
of employees in order to show a large apparent saving in salaries. 
When it became exhausted, the Government, being partly responsible, 
was impelled in common honor to assume its liabilities. The Govern- 
ment is therefore engaged at present in paying pensions and gratuities 
to the civil servants whom it had required to contribute to a fund it 
had helped to make insolvent. It will have to continue to do so until 
all those who entered the service before 1895, the year of the abandon- 
ment of the plan, are dead, an obligation that will probably not be 
fulfilled short of 40 years hence, and in the meantime the original 
problem of superannuation in the Government service is no nearer 
solution than it was in 1884, when the civil-service act established the 
ill-fated retirement plan.^ 

Enough has been said to show the difficulty of keeping a pension 
list within bounds wherever the whole or a part of the expense is paid 
out of the public exchequer. Instead of being able to reduce that 
charge from a probable 16 per cent of the pay roll, such as the ex- 
perience of England has shown necessary, it would seem more likely 
that, beset with temptations on all sides, those entrusted with the 
administration of a civil pension in the United States would show 
themselves quite as human and fallible as have similar officials in 
other countries, and the cost would be proportionately as great here 
as under any other Government. 

1 See Civil Service Retirement, New South Wales, Australia, Sen. Doc. 420, 61st Cong., 
2d sess. 



48 EETIKEMENT OP SUPEEAISTNUATED CIVIL-SERVICE EMPLOYEES. 
PEOBABLE LEAST COST OF CIVIL PENSION IN THE UNITED STATES. 

The following table shows that the cost of a civil pension confer- 
ring the same benefits as the Perkins bill (S. 1944) and payable en- 
tirely out of the Public Treasury would be $232,773,690 during the 
next 35 years, as contrasted with the cost of the Perkins bill for the 
same period at $97,553,023. The difference in cost between the two 
measures for that length of time would be $135,220,667, and it would 
increase as the years went on, for the cost of the pension would grow 
year by year, as shown by the table, whereas the cost of the Perkins 
bill would be nil at the end of 78 years, or by the time every one now 
in the service is dead.* 



Table I. — Showing comparative cost to the Government during first 35 years 
of retiring employees on straight pensions and under the Perkins hill {8. 

im). 





All employees. 


General employees. 


Period. 


Excess cost 

of retiring all 

employees 

on straiglit 

pensions 
over cost of 
retiring all 
employees 

under 
Perkins bill 
during first 

35 years. 


Cost of retir- 
ing all em- 
ployees 
under 
Perkins bUl 
shown for 
period of 
35 years. 


Cost of retir- 
ing all em- 
ployees on 

straight pen- 
sion confer- 

rmg benefits 
of Perkins 
bill during 

first 35 years. 


Excess cost 
of retiring 
general em- 
ployees on 
straight pen- 
sions over 
cost of retir- 
mg general 
employees 

under 

Perkins bill 

during first 

35 years. 


Cost of retir- 
ing gen- 
eral em- 
ployees under 
Perkins bill 

during 
first 35 years. 


Cost of retir- 
ing gen- 
eral em- 
ployees on 
straight pen- 
sion confer- 
ring benefits 
of Perkins 
bill sho\vn 
during first 
35 years. 




$135,220,667 


$97,553,023 


$232,773,690 


$52,850,870 


$51,397,218 


$104,248,088 






1,121,795 
1,261,819 
1,390,485 
1,556,632 
1,705,135 
1,861,499 
2,003,086 
2,129,118 
2,252,506 
2,317,860 
2,392,028 
2,441,271 
2,491,484 
2,559,337 
2,621,035 
2,679,979 
2,726,937 
2,791,401 
2,871,945 
2,940,921 
3,047,310 
3,138,272 
3,235,543 
3,323,097 
3,390,712 
3,442,268 
3,469,245 
3,481,754 
3,495,463 
3,483,861 
3,454,704 
3,419,266 
3,373,275 
3,314,099 
3,232,814 
3,135,067 


1,121,795 
1,275,827 
1,426,988 
1,633,145 
1,832,957 
2,057,640 
2,280,234 
2,499,671 
2,726,246 
2,890,539 
3,099,086 
3,285,789 
3,504,950 
3,770,456 
4,033,763 
4,321,413 
4,602,513 
4,950,113 
5,361,782 
5,629,086 
6,315,522 
6,805,614 
7,369,7.37 
7,984,790 
8,562,182 
9,183,536 
9,777,504 
10,335,680 
10,967,787 
11,552,699 
12,154,724 
12,777,377 
13,393,514 
13,958,139 
14,458,938 
14,871,954 


""""'6,' 834' 

20,428 

45,745 

77,505 

125,051 

179,179 

240,654 

298,473 

341,583 

405,951 

463, 689 

528,099 

696,568 

669,621 

738,254 

813,344 

902,076 

1,006,032 

1,107,669 

1,284,459 

1,428,818 

1,611,255 

1,814,930 

2,010,982 

2, 192, .352 

2,375,382 

2,513,964 

2,721,595 

2,927,127 

3,177,801 

3,449,223 

3,762,363 

4,061,247 

4,350,884 

4,601,733 


706,290 
803, 660 
892,056 
1,020,092 
1,123,599 
1,249,851 
1,358,948 
1,449,713 
1,532,090 
1,553,682 
1,577,259 
1,570,667 
1,556,937 
1,545,965 
1,537,544 
1,511,480 
1,485,348 
1,465,143 
1,456,133 
1,438,410 
1,465,515 
1,482,258 
1,508,111 
1,530,210 
1,549,001 
1,548,476 
1,544,175 
1,538,943 
1,543,. 3.58 
1,546,149 
1,547,352 
1,552,364 
1,561,293 
1,564,071 
1,551,927 
1,529,148 


706,290 




14,668 
36, 503 

76,513 

127,822 

196,141 

277,148 

370,553 

473,740 

572,679 

707,058 

844,518 

1,013,466 

1,211,119 

1,412,728 

1,641,434 

1,875,576 

2,158,712 

2,489,837 

2,088,165 

3,268,212 

3,667,342 

4,131,194 

4,661,693 

5,171,470 

5,741,268 

6,308,259 

6,853,926 

7,472,324 

8,068,8.38 

8,700,020 

9,358,111 

10,020,239 

10,644,040 

11,226,124 

11,736,887 


810,494 




912,484 




1,065,837 




1,201,104 




1,374,902 




1,538,127 


7 years ,-.- 


1,690,367 
1,830,563 




1,895,265 




1,983,210 




2,034,356 




2,085,036 




2,142,533 




2,207,165 




2,249,734 




2,298,692 




2,367,219 




2,462,165 




2,546,079 




2,749,974 




2,911,076 




3,119,366 




3,345,140 




3,559,983 




3,740,828 




3,919,557 




4,052,907 




4,264,953 




4,473,270 


30 years 


4,725,153 




5,001,587 


32 years 


5,323,656 


33 years 


5,625,318 


34 years 


5,902,811 


35 years 


6, 130, 881 











1 See Table XXVIII, p. 160. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 49 

Table I. — FHimoing comparative cost to the Government during first 35 years 
of retinng employees on straight pensions and under the Perkins bill (8 
Z944)— Continued. 





Mail carriers. 


Railway postal clerks. 


Period. 


Excess cost 
of retiring 
mail carriers 
on straight 
pensions over 
cost of retir- 
ing mail car- 
riers under 
Perkins bill 
during first 
35 years. 


Cost of retir- 
ing mail car- 
riers under 
Perkins bill 
during first 
35 years. 


Cost of retir- 
ing mail car- 
riers on 
straight pen- 
sion confer- 
ring benefits 
of Perkins 
bill during 
first 35 years. 


Excess cost 
of retiring 
railway 
postal clerks 
on straight 
pensions over 
cost of retir- 
ing railway 
postal clerks 

under 

Perkins bill 

during first 

35 years. 


Cost of retir- 
ing railway 
postal clerks 

under 

Perkins bill 

during first 

35 years. 


Cost of retir- 
ing railway 
postal clerks 
on straight 
pension con- 
ferring bene- 
fits of 
Perkins bill 
during first 
35 years. 




S57, 621, 100 


$26,153,595 


$83,774,695 


$24,748,697 


$20,002,210 


$44,750,907 


Immediately 




156,449 

187, 943 

217,500 

246, 545 

273,947 

294, Oil 

312, 044 

326,639 

347,075 

371, 103 

394,799 

424, 154 

459,273 

503, 673 

542,928 

597, 995 

648, 186 

708,207 

776, 330 

839,736 

892, 680 

940, 521 

989, 799 

1,036, .572 

1, 072, 848 

1,122,372 

1, 154, 148 

1,178,888 

1,197,461 

1,197,318 

1, 188, 837 

1, 172, 208 

1, 146, 978 

• 1,114,770 

1, 079, 298 

1, 040, 360 


156,449 

194, 135 

230,582 

271,397 

313,056 

347,887 

384,969 

421,557 

473,543 

537, 123 

609, 494 

696, 568 

804, 870 

939,402 

1,066,092 

1,236,911 

1, 405, 327 

1,607,750 

1,847,105 

1,940,819 

2,319,568 

2, 530, 315 

2,764,282 

3,021,658 

3,255,032 

3,575,876 

3,871,176 

4,179,929 

4, 488, 219 

4,753,316 

5, 017, 629 

5,272,635 

5,516,160 

5,719,931 

5,912,515 

6,091,418 




259,056 
270, 216 
280,929 
289, 995 
307,589 
317,637 
332,094 
352,766 
373,341 
393,075 
419,970 
446, 450 
475,274 
509, 699 
540,563 
570,504 
593,403 
618,051 
639,482 
662,775 
689, 115 
715,493 
737, 633 
756,315 
768,863 
771,420 
770,922 
763,923 
754, 644 
740,394 
718,515 
694, 694 
665,004 
635, 258 
601.589 
565,559 


259,056 
271 198 


1 year 


6,192 

13,082 

24, 852 

39, 109 

53,876 

72, 925 

94,918 

126, 468 

166,020 

214, 695 

272, 414 

345,597 

435, 729 

523, 164 

638, 916 

757, 141 

899,543 

1,070,775 

1,101,083 

1, 426, 888 

1,589,794 

1, 774, 483 

1,985,086 

2, 182, 184 

2,453,504 

2,717,028 

3,001,041 

3,290,758 

3,555,998 

3,828,792 

4, 100, 437 

4,369,182 

4, 605, 161 

4, 833, 217 

5,051,058 


982 

2,993 

5,916 

11,208 

17,214 

25, 044 

34,981 

48,799 

65,076 

86, 412 

108, 415 

139,770 

178, 822 

219,943 

264, 264 

305,091 

357,093 

413,030 

479,413 

556,865 

648,730 

748, 456 

861, 677 

978, 304 

1,095,412 

1,215,849 

1,338,921 

1, 459, 971 

1,585,713 

1,693,427 

1,808,461 

1,888,694 

1,977,632 

2,042,023 

2,084,096 




283, 922 
295,911 
318,797 
334,851 
357 138 


3 years 


4 years 


5 years 


() years 




387,747 
422 140 


8 years 


9 years 


458, 151 
506 382 


10 years 


11 years 


554,865 
615, 044 
688,521 
760,506 
834,768 
898,494 
975 144 


12 years... 


13 years 




15 years 




17 years 




1,052,512 
1,142 188 


19 years 


20 years 


1,245,980 
1,364,223 
1,486,089 
1,617,992 
1,747,167 
1,866,832 
1,986,771 
2,102,844 
2,214,615 
2,326,107 
2,411,942 
2,503,155 
2,553,698 
2, 612, 890 


21 years 


22 years 




24 years 


25 years 


26 years 


27 years 


28 years 


29 years 


30 years 


31 years 




33 years 




2,643,612 
2,649,655 







74196°— S. Doc. 745, 61-3- 



50 hETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

The difference in cost between the civil pension and the Gillett bill 
(H. R. 22013) would be still more striking, as shown by the following 
table. The cost of the Gillett bill during the next 35 years would be 
$73,136,765, or $159,636,925 less than the cost of the straight pension. 

Table II. — Showing comparative cost to the Oovernment during first 35 years 
of retiring employees on straight pensions and under the Qillett hill {H. R. 
22013). 



Period. 



All employees. 



Excess cost 

of retiring all 

employees 

on straight 

pensions 

over cost of 

retiring all 

employees 

under Gillett 

bill during 

first 35 years. 



Cost of retir- 
ing all em- 
ployees un- 
der Gillett 
bill for first 
35 years. 



Cost of retir- 
ing all em- 
ployees on 
straight pen- 
sions confer- 
ring benefits 
of Perkins 
bill shown 
for first 35 



General employees. 



Excess cost 
of retiring 
general em- 
ployees on 

straight pen- 
sions over 

cost of retir- 
ing general 
employees 

under Gillett 

bill for first 

35 years. 



Cost of retir- 
ing general 
employees 

under Gillett 

bill shown 

for first 35 

years. 



Cost of retir- 
ing general 
employees 
on straight 
pensions con- 
ferring bene- 
fits of Per- 
kins bill 
shown for 
first 35 years. 



$159,636,925 



$73,136,765 



§232,773,690 



$73,291,503 



$30,956,585 



$104,248,088 



Immediately 

1 year 

2 years 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 



143,251 

183,722 

225,010 

296,713 

377,137 

483,844 

604,428 

726,230 

863,729 

980,509 

1,136,821 

1,282,331 

1,458,826 

1,671,379 

1,898,435 

2,141,890 

2,392,690 

2,692,705 

3,054,058 

3,277,090 

3,909,050 

4,353,846 

4,876,669 

5,466,180 

6,035,966 

6,649,876 

7,264,466 

7,859,281 

8,532,510 

9,194,280 

9,880,297 

10,585,654 

11,325,203 

12,009,845 

12,634,530 

13,168,474 



978,544 
1,092,105 
1,201,978 
1,336,432 
1,455,820 
1,573,796 
1,675,806 
1,773,441 
1,862,517 
1,910,030 
1,962,265 
2,003,458 
2,046,124 
2,099,077 
2,135,328 
2,179,523 
2,209,823 
2,257,408 
2,307,724 
2,351,996 
2,406,472 
2,451,768 
2,493.068 
2,518,610 
2,526,216 
2,533,660 
2,513,038 
2,476,399 
2,435,277 
2,358,419 
2,274,427 
2,191,723 
2,068.311 
1,948,294 
1,824,408 
1,703,480 



1,121,795 
1,275,827 
1,426,988 
1,633,145 
1,832,957 
2,057,640 
2,280,234 
2,499,671 
2,726,246 
2,890,539 
3,099,086 
3,285,789 
3,504,950 
3,770,456 
4,033,763 
4,321,413 
4,602,513 
4,950,113 
6,361,782 
5,629,086 
6,315,522 
6,805,614 
7,369,737 
7,984,790 
8, 562, 182 
9,183,536 
9,777,504 
10,335,680 
10,967,787 
11,552,699 
12,154,724 
12,777,377 
13,393,514 
13,958,139 
14,4.58,938 
14,871,954 



125,977 

159,796 

191,773 

247, 796 

306,150 

391,087 

482,702 

570,325 

659,329 

717,534 

798,130 

858,814 

925,760 

1,002,542 

1,090,965 

1,164,674 

1,248,229 

1,344,760 

1,468,023 

1,583,809 

1,798.518 

1,976,437 

2,201,062 

2,453,463 

2,694,741 

2,910,040 

3,131,832 

3,313,939 

3,570,962 

3,834,130 

4,139,178 

4,468,924 

4,853,520 

5,217,325 

5,554,128 

5,835,129 



580,313 

650,698 

720,711 

818,041 

894,954 

983,815 

1,055,425 

1,120,042 

1,171,234 

1,177,731 

1,185,080 

1,175,542 

■1,159,276 

1,139,991 

1,116,200 

1,085,060 

1,050,463 

1,022,459 

994,142 

962,270 

951,456 

934,639 

918,304 

891,677 

865,242 

830, 788 

787,726 

738,968 

693,991 

639,146 

685,975 

532,663 

470,136 

407,993 

348,683 

295,752 



706,290 
810,494 
912,484 
1,065,837 
1,201,104 
1,374,902 
1,538,127 
1,690,367 
1,830,563 
1,895,265 
1,983,210 
2,034,356 
2,085,036 
2,142,533 
2,207,165 
2,249,734 
2,298,692 
2,367,219 
2,462,165 
2,546,079 
2,749,974 
2,911,076 
3,119,366 
3,345,140 
3,559,983 
3,740,828 
3,919,557 
4,052,907 
4,264,953 
4,473,276 
4,725,153 
5,001,587 
5,323,656 
5,625,318 
5,902,811 
6,130,881 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 51 

Table II. — Showing comparative cost to the Government during first 35 years 
of retiring employees on straight pensions and under the Gillett bill {H. B. 
22013)— Continxxed. 



Period. 



Mail carriers. 



Excess cost 
of retiring 
mail carriers 
on straight 
pensions over 
cost of retir- 
ing mail car- 
riers under 
Gillett bill 
during first 
35 years. 



Cost of retir- 
ing mail car- 
riers under 
Gillett bill 
shown for 
first 35 years. 



Cost of retir- 
ing mail car- 
riers on 
straight pen- 
sions confer- 
ring benefits 
of Perkins 
bill shown 
for first 35 
years. 



Railway postal clerks. 



Excess cost 
of retiring 

railway 
postal clerks 
on straight 
pensions over 
cost of retir- 
ing railway 
postal clerks 
under Gillett 
bill for first 
35 years. 



Cost of retir- 
ing railway 
postal clerks 
under Gillett 
bill shown 
for first 35 



Cost of retir- 
ing railway 
postal clerks 
on straight 
pension con- 
ferring bene- 
fits of 
Perkins bill 
shown for first 
35 years. 



$58,189,336 



Immediately 

1 year 

2 years 

3 years , 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years.... .. 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years, 

33 years 

34 years 

35 years 



825,585,359 



$83,774,695 



$28,156,086 



$16,594,821 



789 

6,544 

13,597 

25,468 

39,867 

54,709 

73,995 

96,059 

127,968 

167,934 

216,854 

275,067 

348,443 

438,886 

526,525 

642,907 

761,885 

904,093 

1,076,803 

1,108,096 

1,435,101 

1,599,914 

1,787,042 

2,000,775 

2,202,284 

2,478,741 

2,746,127 

3,033,900 

3,327,021 

3,600,232 

3,875,080 

4,147,641 

4,416,157 

4,652,223 

4,880,938 

5,099,671 



155,660 

187,591 

216,985 

245,929 

273,189 

293,178 

310,974 

325,498 

345,575 

369,189 

392,640 

421,501 

456,427 

500,516 

539,567 

594,004 

643,442 

703,657 

770,302 

832,723 

884,467 

930,401 

977,240 

1,020,883 

1,052,748 

1,097,135 

1,125,049 

1,146,029 

1,161,198 

1,153,084 

1,142,549 

1,124,994 

1,100,003 

1,067,708 

1,031,577 

991,747 



156,449 

194,135 

230,582 

271,397 

313,056 

347,887 

384,969 

421,557 

473,543 

537,123 

609,494 

696,568 

804,870 

939,402 

1,066,092 

1,236,911 

1,405,327 

1,607,750 

1,847,105 

1,940,819 

2,319,568 

2,530,315 

2,764,282 

3,021,658 

3,255,032 

3,575,876 

3,871,176 

4,179,929 

4,488,219 

4,753,316 

5,017,629 

5,272,635 

5,516,160 

5,719,931 

5,912,515 

6,091,418 



16,485 

17,382 

19,640 

23,449 

31,120 

38,048 

47,731 

59,846 

76,432 

95,041 

121,837 

148,450 

184,623 

229,951 

280,945 

334,309 

382,576 

443,852 

509,232 

585,185 

675,431 

777,495 

888,565 

1,011,942 

1,138,941 

1,261,095 

1,386,507 

1,511,442 

1,634,527 

1,759,918 

1,866,039 

1,969,089 

2,055,526 

2,140,297 

2,199,464 

2,233,674 



242,571 
253,816 
264,282 
272,462 
287,677 
296,803 
309,407 
327,901 
345,708 
363,110 
384,545 
406,415 
430,421 
458,570 
479,561 
500,459 
515,918 
531,292 
543,280 
557,003 
570,549 
586,728 
597,524 
606,050 
608,226 
605,737 
600,264 
591,402 
580,088 
566,189 
545,903 
534,066 
498,172 
472,593 
444,148 
415,981 



$44,750,907 



259,056 

271,198 

283,922 

295,911 

318,797 

334,851 

357,138 

387,747 

422,140 

458,151 

506,382 

554,865 

615,044 

688,521 

760,506 

834,768 

898,494 

975,144 

1,052,512 

1,142,188 

1,245,980 

1,364,223 

1,486,089 

1,617,992 

1,747,167 

1,866,832 

1,986,771 

2,102,844 

2,214,615 

2,326,107 

2,411,942 

2,503,155 

2,553,698 

2,612,890 

2,643,612 

2,649,655 



The cost of a pension paid out of the Public Treasury compared 
with the cost to the Government of establishing the Perkins or 
Gillett bill is graphically illustrated in the following chart: 



52 RETIREMENT OP SUPEEANlSrUATED CIVIL-SEEVICE EMPLOYEES. 

Chart showing comparative cost to the Government during the first thirty-five years of 
the savings and annuity plan embodied in the Perkins and Gillett bills, and a pension 
giving the same benefits as the Perkins bill, but wholly at Government expense. 



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RETIREMENT OE SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 53 

The computations made to show the cost of the straight pension are 
minimum charges, no allowance being made for gratuities, compensa- 
tions for loss of office, compassionate allowances, or any of the extras 
that are sure to spring up and flourish under a pension system. On 
the other hand, the computations made to show the cost of putting 
into effect the Perkins or Gillett bill are maxim^um charges, as no 
allowance is made for resignations, for the fact that the calculations 
are based on present salaries rather than average salaries, or for the 
retention in office of some employees past the age of retirement. In 
an ordinary service the rate of resignation is usually equal to the rate 
of mortality. The present salary of the individual is usually higher 
than his average salary for his entire period of service. 

The table showing the cost of civil pensions is carried out to 35 
years only, and is below the actual cost of a civil pension by the 
amount required to pension those who will come into the service here- 
after at ages above 35 years and hence be entitled to pension within 
the 35 years shown in the table. 

DIFFERENCE BETWEEN CIVIL AND MILITARY PENSIONS. 

The argument is sometimes advanced that, whatever the expense of 
a pension, the members of the civil service are as much entitled to 
that benefit as are members of the military and naval service. This 
argument will not bear analysis. The State demands from the indi- 
vidual who enters the military or naval service the surrender of 
many rights and privileges of which the individual entering the 
civil service is not deprived. First, the State requires a definite 
term of service, all the best years of his life in the case of the officer 
or a minimum number of years in the case of the enlisted man. Then 
the State reserves the right of dismissing the individual when his 
most useful years are past, since it is not only desirable but absolutely 
imperative if an army or navy is to be maintained at a high stand- 
ard of efficiency that the personnel be composed of men in the prime 
of life. While in the service, the individual is, theoretically at least, 
under orders constantly, not 7 hours a day, but 24, except when 
granted definite leave of absence from duty. His personal liberty 
is constantly curtailed, even his apparel, speech, and manners being 
subject to scrutiny and criticism such as would not be endured by 
members of the civil service. His pay is supposed to be sufficient for 
his needs, but in the case of neither officer nor private is it sufficient 
in itself to be an inducement to enter the Army or Navy. The at- 
traction is supposed to be the honor and dignity attached to the serv- 
ice, and the chance it offers him for winning distinction. Finally, in 
case of war, he must go into battle and give his life, if necessary, 
for the State. In return for his renunciation of personal liberty, his 
willingness to defend the State with his life, and the forfeiture of his 



54 EETTREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

chance to provide for his old age by some other means, the State 
agrees to grant him a pension when he reaches the age of retirement. 

The civil servant, on the other hand, makes no agreement on taking 
office to be subject to military discipline or to risk his life and limb in 
time of war. His duties are seldom of a hazardous nature. The reg- 
ulations to which he is obliged to conform are usually what would be 
customary in an ordinary business office and no more. 

Instead, however, of the practice regarding the pensioning of offi- 
cers of the Army and the Navy being taken as a model for the civil 
service, it may even be questioned whether the pensioning of Army 
and Navy officers might not be wisely remodeled on the basis here 
proposed for the civil service, with the addition of a provision for 
special recognition in the matter of retiring allowances in the case of 
those officers who actually go into battle. It is at least a subject open 
to debate whether members of the military and naval services and 
other police organizations might not be considered fairly treated in 
times of peace if they were given adequate salaries and required to 
set aside enough out of them every month to pay for their retiring 
allowances. Nor is this suggestion so unprecedented as some may 
think. In 1885 the British Parliament appointed a select committee 
to inquire into the subject of national provident insurance. This 
committee spent two years investigating conditions imposed by vari- 
ous private emploj^ers of labor upon those in their employment in 
order to provide for their superannuation. It was impressed with 
the growing cost of pensions, and came to the conclusion that not only 
the civil but the military establishments of the State also might well 
follow the example of private business firms in requiring employees 
to contribute to their pensions. They stated in their report that 
they — 

Are of opinion tliat all persons hereafter appointed to tbe service of the 
Crown, whether civil or military, whose service at present connts toward pen- 
sion, should contribute toward that pension by a percentage deduction from 
salaries or pay. The steady and rapid growth of the pension list points to ap- 
proximate revision of the entire policy of burdening the public with the pro- 
vision of pensions; the enterprise of private individuals and firms indicates the 
advantage of self-help as a condition of employment (which it might be proper to 
supplement with State help) ; and your committee i-ecommend that not only in 
service counting under the present system toward pension but also in the police 
and other unpensioned branches of the public service contribution to a pension 
fund should be made obligatory.^ 

The Civil Pension is Demoealizing to the Service. 

Setting aside all comparisons then of the civil service with the 
military or naval, there are two sound arguments against a civil 
pension besides the heavy charge that it makes on the resources of 

1 Second Report of Commission on Civil Establishments, 1888, appendix, p. 423. 



KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 55 

the country which discredit it witL those who have the efficiency 
of the civil service and the welfare of the civil servants at heart. 

First, it is demoralizing to the service. It makes dismissal of the 
inefficient difficult, since it is hard for the superior officer to cause his 
subordinate not only loss of position but also loss of the pension 
which he has partly earned and counts as an asset of office. The re- 
sult is a breaking down of the moral tone of the members of the serv- 
ice, esj)ecially of the younger employees, since they come to feel they 
are safe however badly they do their work and unappreciated how- 
ever well they do it. In an article entitled "The mischief of pen- 
sions," an observer of the English system, named Michael Peters, 
brings out the danger in words that will bear quoting: 

There is this just scruple that besets the Government and hampers it on 
every side — that men vrhom it vpould be desirable to remove or supersede have 
not been fully paid for the work which they have done in the past until their 
pension falls due, and that it can not be justice to make them forfeit this de- 
ferred remuneration on account of present deficiencies. This difficulty gives 
occasion for the very broad margin of conduct within which a Government 
servant may maintain his position ; the reluctance to dispense with the services 
of men lacking in energy or interest in their work; the system of shunting an 
official, who has progressed on the ladder of routine to a position for which he 
is not fitted, from one department, where he is "making a mess of it," to an- 
other unfortunate department, where it is probable he will do the same; the 
unwritten law which decrees that an official once in receipt of a certain salary 
must in future, apart from any consideration of ability, occupy posts of equal or 
higher value, but can not occupy one of less value, because the ultimate pension 
is calculated in a certain ratio to the salary received at the date of retirement. 

This tolerance of ineptitude reacts upon the officials themselves and upon the 
junior officials in particular. These see that, however much energy and en- 
deavor they may put forth, advance in their profession is cramped into a 
matter of routine by the repletion of higher posts with men in whom slackness 
or inability appears to be a matter of no importance. Moreover, they have to 
suffer the gall of constant service under the thumb of such men, whose in- 
fluence is necessarily repressive and numbing, who do not appreciate energy, 
possibly even damp it, discouraging too much zeal because they are not them- 
selves able to understand it, and because they have, nevertheless, a dread that 
it might reflect disparagingly on themselves. This it is that, through monoto- 
nous years of subordinate service, breaks the heart of many a young man full 
of praiseworthy zeal and activity ; this it is that kills originality and initiative 
in the young, so that, when they in turn reach those posts of higher responsi- 
bility, they have learned to do their work as did their seniors before them — as 
a machine makes matches. Added to which these young officials have the fact 
constantly before their eyes, that whether they exert themselves or whether they 
refrain from exerting themselves, they will ultimately, and with routine pre- 
cision, arrive at those same posts and be able to stick to them, provided only 
that they are able to quench their ardor and work themselves down to a soft 
and convenient complacency.^ 



1 See " The mischief of pensions," Part II, by Michael Peters, in the Gentleman's Maga- 
zine, London, September, 1907, p. 227. 



56 RETIE^MEFT OP SUPERAiSTNUATED CIVlL-SEEVlCE EMPLOYEES. 
DIFFERENCE BETWEEN GOVERNMENT SERVICE AND PRIVATE BUSINESS. 

The question may be raised why a straight pension should be de- 
moralizing to the Government service when the testimony of private 
employers is to the effect that they have found it helpful in the main- 
tenance of discipline. The answer is that conditions of employment 
in the Government service are diametrically different from those in 
private service. A straight pension is a powerful aid to the ordinary 
employer in holding his men and in keeping up their standard of 
efficiency, as brought out by the Hon. Frank A. Vanderlip, president 
of the National City Bank of New York, in an article on " Insurance 
for workingmen," published in the North American Eeview in 
December, 1905. Said he — 

When employees realize that unsatisfactory conduct may at any time lose 
them not only their present position — a loss vphich in such a labor market as 
ours might be easily made good — but that it entails further the loss of a very 
valuable asset, the employee's right to a pension, the incentive to good conduct 
is greatly increased. It operates especially as an incentive to hold men between 
the ages of 40 and 50 when they have acquired the experience and skill which 
makes them especially valuable, and prevents their being tempted away by 
slightly increased wages for a temporary period. 

This statement is entirely correct when applied to business institu- 
tions. It is not wholly correct when applied to the Government 
service. A straight pension is a powerful aid to the Government as 
well as to a corporation in holding its employees, but there is this 
radical difference in its operation under the two conditions: In the 
case of the Government it operates to hold the poor employees rather 
than the good and to break down rather than to keep up the standard 
of efficiency. This is explained by two fundamental differences in the 
conditions of labor when a private corporation is the employer and 
when the United States Government acts in that capacity. These are, 
first, the fact that there is seldom any relationship between the value 
and the cost of a Government output such as there always is in the 
case of a commodity produced by a private corporation, and, secondly, 
the fact that the man at the head of a Government office or shop has 
much less authority over his subordinates than has an executive 
officer similarly placed in a private business. 

Business enterprises are conducted for the purpose of paying divi- 
dends, and as inefficiency on the part of an employee has a direct 
bearing on the dividends, it will not be tolerated. On the other hand, 
the great majority of Government employees are not engaged in the 
production of commercial articles which must be sold at a profit in 
competition, and the loss to the Government through inefficiency is 
not so apparent or so easily measured. It may, for instance, cost the 
Government a hundred thousand dollars to get out a highly scientific 
or technical report which is, economically, either at the time or ulti- 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 57 

mately in the course of years, well worth that sum of money to the 
people of the United States, but which, commercially, would not 
bring in a thousand dollars if placed on the market for sale. Since 
the inefficiency of an employee engaged in work that has such an 
uncertain market value is not so easily detected or so likely to be 
regarded as serious as would be the case in private business, he is 
usually permitted to remain in the Government service, whereas he 
would be very promptly dismissed by a private house. 

The fact that the administrative officials at the head of Govern- 
ment offices have not entire control over the selection of their subordi- 
nates makes it impossible tor those officials to be held as strictly 
responsible for results as is the case in private businesses. What is 
everybody's business is nobody's business. Since also the position of 
the executive head of the office is not greatly endangered by the in- 
competency of his assistants, especially where the effect of the incom- 
petency can not be readily measured by reduction in actual output 
of some kind, it follows that he can afford to be lenient with them. 
He is especially inclined to be so if the employee's inefficiency is 
known to be the result of old age, or any other cause which makes 
an appeal to the natural feelings of humanity. In case the inefficient 
employee is working under a pension system whereby he is entitled, 
on reaching a certain age, to retirement on a competence, the head 
of the office will be all the more reluctant to dismiss him before he 
reaches that age. But a pension system has exactlj'' the opposite 
effect where a private corporation is the employer. In that case the 
administrative official at the head of any office is held directly re- 
sponsible either to the owner of the business or a board of directors 
for the inefficiency of his subordinates. The output can usually be 
measured in terms of tons or dollars, and if it falls below the required 
amount the position of the man in charge is jeopardized. In self- 
defense, therefore, he is obliged to hold every subordinate up to the 
highest standard of efficiency and to stifle any feeling of humanity 
or sympathy which might otherwise tempt him to show leniency. 
That being his state of mind, a pension system becomes a powerful 
aid to him in his effort to maintain discipline and secure obedience 
and industry, as explained by Mr. Vanderlip in the article quoted 
above. Undoubtedly, the reason why railroads and other corpora- 
tions are disposed to favor the straight pension with entire control 
of the pension fund rather than any contributory plan with a fund 
in any way controlled by the employees, is that it helps them to 
approximate the establishment of military discipline among their 
subordinates. They look on a pension as a useful ]?ind of strike 
insurance. For fear of forfeiting his pension, the employee, like the 
soldier, will sacrifice much of his personal liberty, including his right 
to strike for better wages or shorter hours. 



58 RETIREMEI^T OP SUPERA.NNUATED CIVIL-SERVICE EMPLOYEES. 

It may be argued that commercial or military ideas and practices of 
economy and discipline should be maintained in the Government serv- 
ice. It is, however, an open question whether to do so is more than 
theoretically possible and certainly it would be dangerous to count on 
their successful introduction in considering the establishment of a 
civil pension system. The whole question is more complicated than 
the outside business man realizes, for the minute the head of an office 
were given a free hand in the selection and removal of his subordi- 
nates, as would be the case in a private business, political influence 
would be brought to bear on him to employ this, that, or the other 
individual, and the public offices would once more become the retreat 
of the indigent friends of successful politicians. Whatever financial 
losses may be occasioned by lack of authority or responsibility on the 
part of executive heads is slight in comparison with the cost of the 
frequent changes and corrupt practices sure to characterize the ad- 
ministration of politically controlled offices. 

It thus appears that, while the enforcement of that part of the civil- 
service law relating to the dismissal of the incompetent is sufficiently 
difficult at present, it would become greatly more so under a civil pen- 
sion system, unless military discipline such as rules in the Army and 
Navy and in commercial establishments were introduced into the civil 
service. The straight pension in the Army and Navy may be de- 
fended somewhat as a logical offset to the surrender of individual 
independence. In private business it is on exactly the same footing, 
though the attempt is usually made by the corporation to present it 
to the employee in the guise of a beneficence. It may be disputed 
whether such discipline in the civil service would be an improvement 
over present conditions or not, but it should be established first if the 
establishment of a civil pension system is undertaken, unless complete 
demoralization of the service is desired, for to bestow the straight 
pension on civil employees under present conditions would be to intro- 
duce a temptation to even greater leniency with the incompetent than 
is at present the case. On the other hand, the establishment of a sav- 
ings and annuity plan like that in the proposed bill would have exactly 
the opposite effect, since administrative officials would be less reluctant 
to dismiss an incompetent clerk who was known to have a goodly sum 
to his credit than one who would be penniless, as is more often the 
case under present conditions. 

The Civil Pension Means Wages Below Mabket Price 

Finally, it is shown by the history of civil pensions in other lands 
that they are not in the interest of the civil servants themselves. The 
experience of Great Britain is especially instructive, for the states- 
men of that country have been experimenting a full century with 
legislation of one kind or another designed to remedy the evil of 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 59 

superannuation in office. It would be the part of folly for the United 
States to disregard the plain lesson taught by their experience, that 
only those comparatively few members of the civil service who sur- 
vive to pensionable age and remain in the service until that age derive 
any benefit from the pension system, while the others who die or 
drop out before reaching pensionable age are actually worse off than 
if there were no pension list. This is due to the fact that, human 
nature being as it is, the pension always comes to be taken into ac- 
count in fixing salaries, even though established in the beginning as a 
pure gratuity, and the result is that the pensionable employee works 
below the current market price. In case he lives to receive the value 
of this " deferred pay " — to use the phrase common in England — in 
the form of a pension, he has no cause for complaint, but, according 
to the English statistics, he either dies or leaves the service before 
that time in six cases out of seven. During the years that the pen- 
sionable employee is working for less than the market wage his fam- 
ily has just so much less to live on than they would have were he a 
nonpensionable employee, and in case he dies or leaves the service 
before reaching pensionable age, his family has absolutely no return 
for all those years of deprivation, unless they can get a gratuity or 
compensation on one pretext or another, a concession which in itself is 
an abuse of the system, as has just been shown. The civil pension, 
in the last analysis, is therefore a pure tontine in which all persons 
lose except those who succeed in three things: Living to a certain 
age, remaining in the service until that age, and living beyond that 
age long enough to get back the value of their contributions. As soon 
as the members of a service begin to realize that the " theory of prob- 
abilities " is against them, and that they have only one chance in seven 
to recover the amount of their " deferred pay," expressions of dissatis- 
faction with the pension system, once so ardently desired, will surely 
be heard. 

EXPEEIENCE OF ENGLAND PROVES CIVIL PENSION IS " DEFERRED PAY." 

The experience of England with the civil pension is briefly as fol- 
lows: A contributory scheme inaugurated in 1829 by treasury minute 
and confirmed by the superannuation act of 1834 was abolished in 
1857, because it was fundamentally unsound and therefore unsatis- 
factory, and succeeded by a system of free pensions, established by 
the superannuation act of 1859. This system, which remained un- 
changed for a half century, was one of the most liberal ever devised 
for the benefit of a civil service; but study of the grievances pre- 
sented by representatives of the service to different royal commis- 
sions appointed from time to time to inquire into the condition of the 
civil establishments, reveals the astonishing fact that the civil servants 
generally came to believe that in reality they were paying for their 



60 RETIKEMEKT OF SUPEBANNUATED CIVIL-SEEVICE EMPLOYEES. 

own pensions, because the salaries in the " established "or pensionable 
service are generally less than in the nonestablished or nonpension- 
able service, and to feel that the Government was treating them un- 
fairly. The theory that " pensions are deferred pay " gained ground, 
especially after the investigation of the civil establishments made 
by the Kidley Commission in 1886-1888. A committee of employees, 
which took the name of the Deferred Pay Committee, was organized, 
and of the 100,000 civil servants about 70,000 joined the organiza- 
tion. As a result of their agitation, the Courtney Commission was 
appointed in 1902 to investigate the grievances of the civil employees. 
The latter held that not only were their salaries lower than they 
would have been had the pension system not been adopted, but that 
the amount withheld from their salaries was more than sufficient to 
pay the pensions. They asked, therefore, that the difference should 
be put into a fund and returned in the form of insurance benefits for 
their dependents. The commission refused to concede that the 
amount withheld from salaries was more than sufficient for the pay- 
ment of pensions, but decided that it might be more satisfactory 
to diminish the amount of the pension and turn the difference into 
a cash sum to be paid at death or on withdrawal from the service. 
By act of Parliament of September 20, 1909, the law of 1859 was ac- 
cordingly modified so that new entrants to the service shall receive 
a pension calculated on the basis of one-eightieth of salary for each 
year of service instead of one-sixtieth, a cash sum in case of resigna- 
tion after two years' service, equal to one-thirtieth of salary for each 
year of service, and a cash sum, in case of death, after five years' 
service, while still in the service, equal to one year's pay, provided 
that if the employee died after reaching the age of 65 the amount 
of the gratuity should be reduced by one-twentieth for each year 
he had served after attaining that age. This last provision was to 
discourage continuance in office after the age of 66, for, although all 
persons in the established civil service in England are liable to com- 
pulsory retirement at that age, the power of retention, in special cir- 
cumstances, for a period not exceeding five years, is lodged with the 
Treasury. 

The present situation in England, then, is this: The Government 
has acknowledged the contention of the employees that salaries are 
less because of the pension, and that the employees are, in reality, 
paying for their own retirement. The English law has been so 
modified as to make the pension system virtually a contributory 
system, the only difference being that the contributions are theoretical 
rather than actual, i. e., the difference between the value of the em- 
ployee's service and his actual pay. The result is that the present 
arrangement, while more satisfactory to the employees than the old 
system, is less equitable than it would be if it had been worked out 



RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 61 

on a priori principles, with a definite benefit for a definite contribu- 
tion. At present, it can not be shown whether the amounts received 
by the employee in the form of pension, insurance, and cash-sur- 
render values correspond with the amounts contributed by him, 
since it has not been ascertained what percentage of salaiy is with- 
held as a contribution. 

THE SUBSTITUTE PLAN A FORM OF CIVIL PENSION. 

A form of civil pension that has seemed to be attractive to many 
members of the civil service is what is known as the substitute plan. 
Every argument that can be advanced against the straight pension 
can be successfully brought against the substitute plan and a few 
others besides. 

It is a plan based on the theory that salaries increase with age, that 
the oldest employees receive the highest salaries, and that employees 
above a given age generally perform service which could be performed 
with equal efficiency by new clerks at half the salary. In other words, 
the plan is founded on the theory that the Government is already 
paying an indirect pension to the old employees equal to half the 
salary which they receive, and that it would therefore cost the Govern- 
ment nothing (additional) to retire the old employees on half their 
salaries and use the other half in the employment of new clerks. The 
advocates of the plan declare, therefore, that it can be established and 
maintained " without expense to the Government." Assuming for the 
moment that their plan has all the merit which they claim for it, it 
would be more accurate to say " without additional expense to the 
Government," for it is manifest that if the employees eligible for 
retirement are receiving salaries sufficient to retire themselves on 
adequate annuities and enough more to employ younger men of equal 
capacity, then the Government is already incurring an expense equal 
to the amount on which they are retired. This is also a plea for 
appropriation by indirection, since the difference between the salaries 
paid and the salaries appropriated would be diverted to another pur- 
pose than that for which the money was appropriated by Congress. 
The policy of diverting money to a purpose other than that for which 
it is appropriated is always to be condemned as dangerous. 

It must be admitted, too, in favor of a straight pension that, in 
some cases, the pensioning of the aged employees would result in the 
promotion of the younger employees; but under the substitute plan, 
if public expenditures are not increased, promotions must of necessity 
be governed by two factors — the mortality among the pensioners and 
the expansion in the service. The death of a pensioner would allow the 
Government to apply his pension to an increase of some other person's 
salary. As long as the service continues to expand the ratio of pen- 



62 KETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

oioners to members of the active service will be below normal. When 
the service ceases to grow and the ratio of pensioners to active mem- 
bers of the service begins to increase, or when the service begins to 
grow smaller for any cause, a condition might easily be reached 
under which a large percentage of the s'^^'vice would be compelled to 
work at half pay in order that the Government might use the other 
half to pay pensions, or persons coming into the service might be 
required to serve at their initial salary — i. e., half pay — for many 
years in order that the Government might use the other half to pay 
pensions. Certainly any plan which thus contemplates the deferment 
of promotions would be subject to criticism on the ground that such 
deferment would be a tax on efficiency. 

There is nothing new about the substitute plan, for long before 
there was any regular system of granting superannuation allowances 
in England many similar irregular practices were followed for mak- 
ing provision for superannuated civil employees. Certain offices 
were granted for life, others were openly maintained at public ex- 
pense as sinecures, and pensions were paid in some cases out of 
various contingent funds. What is now called the substitute plan 
is merely the old custom of charging the salaries of public officers 
with retiring allowances to their predecessors. The British records 
are full of cases of pluralism, of officers holding one office and paying 
out the salary of it to a predecessor while receiving in return the 
salary of a successor in another office. It would seem too obvious 
for argument that such appropriation by indirection, such misdirec- 
tion of funds, would be sure to lead to corruption in office. What 
the British commissioners of 1857 said of such practices still holds 
good: 

Any such mode of providing for retired servants is obviously most objection- 
able in principle and liable to great abuse in practice, both as regards due econ- 
omy in the public expenditure and the fair and equal remuneration of public 
servants.* 

FLAT-RATE ASSESSMENT PLANS INEQUITABLE. 

The civil pensions or noncontributory plans being dismissed as 
costly and undesirable, there remains for consideration the second 
group of plans noted above — contributory plans proposing a uniform 
deduction of a given per cent from all salaries, what is frequently 
called a flat-rate assessment on salaries, to provide a general fund out 
of which to pay annuities to employees. Aside from their financial 
uncertainties, these prove in every instance on analysis to be inequita- 
ble as between employees of different ages. This is true whether the 
annuity paid is uniform or is based on length of service. 

iSee Civil-Service Retirement, Great Britain and New Zealand, S. Doc. No. 290, pp. 
16-21. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 63 
Inequitable if Annuities aee Based on Length of Service. 

Plans proposing a uniform deduction of a given per cent from all 
salaries and the payment of annuities based upon length of service are 
unfair to the employees who enter the service at an early age, as part 
of their savings must go to make up the annuities for the men already 
old in the service when the plan is put into operation, or who came 
into the service at an advanced age. Such a plan actually puts a pen- 
alty on length of service, since it allows the employee who has been in 
the service only a short time to profit by the savings of the one who 
has been there longer. 

Take the case of two men entering the service, one aged 20 and the 
other aged 60, each receiving $100 a month, and deduct 5 per cent of 
that salary, or $5 a month, with the object of paying each man on 
retirement an annuity based on his length of service. Is it feasible? 
The man of 20 will have 50 years to serve before reaching the age of 
retirement and the man of 60 only 10 years. Now, a deposit of $5 a 
month will earn much more interest in a period of 50 years than it 
will in 10 years. Just what is the difference in this concrete case? 
Eeference to an interest table shows us that a deposit of $5 a month 
for 50 years, improved by 3^ per cent compound interest, amounts to 
$8,008.90, which is sufficient to purchase an annuity of $1,054.50, 
beginning at age TO, first payment in 3 months; but the same table 
shows also that a deduction of 5 per cent from the same salary begin- 
ning at the age of 60 years will provide a fund on retirement at age 
70 of only $717.25, and this amount would purchase an annuity at 
age 70 of but $94.44 a year, a sum too small to support any employee, 
however simple his needs. To make this plan practical it would 
therefore be necessary to put the deductions from all employees' sala- 
ries into a general fund and divide the fund among all the annuitants 
in proportion to their length of service. This arrangement would be 
exceedingly unfair, however, to the men who entered the service at 
an early age, as part of their savings would go to make up the 
annuities for the men already old in the service when the plan was 
put into operation, or who came into the service at an advanced age. 
Under such an arrangement the man who entered the service at 60 
and served only 10 years would be retired on more than $94.44, it is 
true, but to have it so, the man who had entered at 20 and worked 
for 50 years would have to give up part of the $1,054.50 his savings 
had earned and content himself with a smaller annuity, a plan that 
seems indefensible, as it actually takes the money of one man to put 
it into the pocket of another who is less meritorious, judged by the 
standard of length of service. A study of the following table will 
show the inequitableness of any flat-rate assessment plan based on 
length of service. 



64 KETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table III. — Shoiving the annuity tvhich a deduction of $5 a month, durini 
various periods of service, will provide on retirement at age 10. 



Age of retirement. 



Age of entrance 
into service. 



c. 


D. 


E. 


F. 
Amount of 




Amount of 




SI a month 


Years of 


annuity 


Cost of 


at end of 


service 


E. 


annuity 


years 


(A-B). 




(FXG). 


sbown in 






S7.595 




Column C. 


50 


$1,054.50 


$8,008.90 


$1,601.78 


45 


851. 51 


6,467.25 


1,293.45 


40 


680. 61 


6, 169. 20 


1,033.84 


35 


636.71 


4, 076. .30 


815. 26 


30 


415. 55 


3, 156. 10 


631.22 


25 


313. .54 


2,381.30 


476.26 


20 


227. 64 


1,728.95 


345.79 


15 


155. 33 


1, 179. 70 


235. 94 


10 


94.44 


717. 25 


143.45 


5 


43.17 


327.85 


65.57 


1 


8.05 


61.15 


12.23 



Q. 

Monthly 
deduc- 
tion from 
salary. 



70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 



20 years 
25 years 
30 years 
35 years 
40 years 
45 years 
60 years 
55 years 
60 years 
65 years 
69 years 



$5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 



Inequitable if Annuities aee Uniform, Regardless of Length of Service. 

Plans proposing a uniform deduction of a given per cent from all 
salaries and the payment of uniform annuities, regardless of length 
of service, put an even greater penalty on entrance into the service at 
an early age, since the per cent deducted from all salaries has to be 
sufficiently large to accumulate not merely annuities for those enter- 
ing the service at an early age, but also to provide the amounts that 
the older men lack in order to retire themselves on the same annuity. 

Suppose it is desired to retire all employees receiving $1,200 salary 
on three-quarters pay, or $900 a year. The value of a life annuity of 
$900 a year, beginning at age TO, first payment in three months 
after reaching that age, may be stated as $6,835.50. To accumulate 
$6,835.50 during a service of 50 years requires a monthly deduction 
from a monthly salary of $100 of but $4.27, if the deductions are im- 
proved by 3^ per cent compound interest. That is all the man begin- 
ning at age 20 would have to set aside each month. But, on the other 
hand, to accumulate $6,835.50 during the 10 years of service of a man 
who entered the service at age 60, or who was already 60 years of age 
when the plan was put into operation, would require a deduction from 
a salary of $100 a month of $47.65, or 47.65 per cent — an impossible 
deduction under any circumstance. To make this plan practicable 
it is therefore necessary to decide upon a per cent to be deducted from 
all salaries which shall be sufficiently large to accumulate not merely 
annuities for those entering the service at an early age, but also to 
provide the amounts that the older men lack to retire themselves on 
the same annuity. It thus appears that this plan puts even a greater 
penalty than does the first on entrance into the service at an early 
age, as is shown by the following table ; 



EETIREMEI>J'T OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES, 65 



IIable IV. — Shoiving amount required to he deducted from a monthly salary of 
$100 (per cent of other salaries) during various periods of service, to provide 
an annuity of $900 a year beginning at age of 10. 



Age of retirement. 



70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 



Age of entrance 
into service. 



20 years 
25 years 
30 years 
35 years 
40 years 
45 years 
50 years 
55 years 
00 years 
65 years 
69 years 



C. 



Years of 
service 
(A-B). 



D. 



Amount of 
annuity. 



900 
900 
900 
900 
900 
900 
900 
900 
900 
900 



E. 



Cost of 

annuity. 

(DX$7.595), 



S6,835.50 
6, 835. 50 
6,835.50 
6,835.50 
6,835.50 
6,835.50 
6,835.50 
6,835.50 
0,835.50 
6,835.50 
6,835.50 



F. 

Amount of 
$1 a monthi 

at end of 
years 

stiown in 
Column C. 



$1,601.78 

1,293.45 

1,033.84 

815. 26 

631. 22 

476. 26 

345. 79 

235. 94 

143. 45 

65.57 

12.23 



G. 

Monthly 
deduc- 
tion from 
salary. 

E 
F 



$4.27 
5.28 
6.61 
8.38 
10.83 
14.35 
19.77 
28.97 
47.65 
104. 25 
558. 91 



ACTUARIAL DIFFICULTIES OF PLANS BASED ON FLAT-RATE ASSESSMENTS. 



These illustrations are sufficient to show how impossible it is to 
devise an equitable plan as between all employees of various ages, 
based upon a uniform deduction of a given per cent from all salaries, 
either to pay annuities based upon length of service or to pay uni- 
form annuities to all employees upon retirement at a given age. The 
most perplexing problem, however, connected with plans proposing a 
uniform deduction of a given per cent from all salaries is to decide 
what annuities could safely be paid out of a common fund thus cre- 
ated and what per cent of salaries would have to be deducted in order 
to raise such a fund. There is no stable and permanent principle to 
serve as a basis for these computations, no fixed or calculable relation 
between the fund and the annuities to be paid out of it. The forfeit- 
ure of interest or principal by those who resign or die before reach- 
ing the retirement age is often relied upon to swell the fund out of 
which annuitants are to be paid, but since the establishment of the 
plan would in itself have a tendency to discourage resignations, this 
source of income is likely to be overestimated. Apart from the injus- 
tice to the individual of any plan that contemplates the commingling 
of assets, the uncertain elements such as length of service, age of 
entrance, rates of resignation, increase of salaries, frequency of for- 
feiture, and the like, which encumber all such plans, make their unde- 
sirability so patent as to permit of no defense. It should be remem- 
bered also that any error of judgment as to what might be accom- 
plished in the way of annuities by a uniform deduction of a given 
per cent from all salaries would undoubtedly mean a call upon Con- 
gress for assistance, and possibly lead ultimately to the establish- 
ment of a civil pension. 

74196°— S. Doc. 745, 61-S 5 



66 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Statements of Various Actuaeies Against Flat-Rate Assessment Plans. 

The actuarial weakness of retirement plans based on a flat-rate as- 
sessment of salary has been pointed out, on various occasions, by 
well-known authorities. In 1891 Mr. William Sutton made the fol- 
lowing statement before a select committee of the British House of 
Commons : 

It may be said that, with a few exceptions, superannuation funds as gener- 
ally constituted are radically wrong in principle when looked at from the 
actuarial point of view. Instead of resting content with the introduction of 
as few assumptions as possible, they are made to involve not only assumptions 
as to the rates of mortality to be experienced among the members and as to 
the rate of interest to be earned by the accumulated funds — these may be fairly 
said to be indispensable — but they are also made to depend upon such 'capricious 
elements as the rates of secession of members (that is, of members leaving 
active service otherwise than by death or retirement), and the rates of salary 
the members will receive, and on which the nature and amount of their con- 
tributions to the fund will depend, as well as the amount of pension they will 
receive. It thus follows that in bringing into the question rates of secession 
and rates of salary, matters which can not be prognosticated with any cer- 
tainty for any length of time, classes of members get lumped together whose 
real circumstances and conditions in respect of these matters are as different 
as possible. 

The impossibility of defending the practice of making flat-rate 
deductions from all salaries for the creation of a general-staff fund 
has been set forth by Mr. George King, one of the vice presidents of 
the Institute of Actuaries. In an article on " Staff-pension funds " 
read before the Institute on January 30, 1905, he made the following 
pertinent remarks on the subject: 

When a fund is to be started and the intending members have formulated the 
benefits they desire, the actuary is sometimes asked to quote the percentage of 
salary necessary to provide them. Theoretically the question is not difficult, 
but in practice it scarcely admits of trustworthy solution. * * * It is gen- 
erally the case that at a few of the younger ages at entry the ordinary contri- 
bution of 5 per cent is sufficient, or even a little more than sufficient, to provide 
the benefits, but that from perhaps 25 at entry an extra is required. Sliould the 
members themselves pay the whole of the contributions, then approximately 
accurate graduation according to age is important, because it would not be 
fair to one set of members if we were to make them contribute to the benefits 
of another set.^ 

HiSTOBY OF Plat-Rate Assessment Plans a Warning. 

The history of contributory plans based on flat-rate assessments 
on salary gathered into a common fund, which have been tried 
by the Governments of England, Australia, Canada, and France at 
different times, shows conclusively how unsatisfactory such plans 
have been found, whether considered from the employees' viewpoint or 

1 See Journal of the Institute of Actuaries, vol. 39, p. 170. 



EETIREMENT OP SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 67 

the Government's. They are always inequitable as between different 
classes of employees, since there is no definite relationship between 
what is given and what is received. The contribution rates are almost 
inevitably inadequate, leading to the ultimate insolvency of the fund, 
for while theoretically it may be a simple matter to fix a flat rate 
of contribution which will be adequate for a given problem, prac- 
tically it is almost impossible, owing to the difficulty of valuation and 
the difficulty of keeping those in authority from changing the rules 
and benefits under a particular plan. 

FLAT-BATE ASSESSMENT PLAN UNSATISFACTOKY IN ENGLAND. 

The British contributory scheme established in 1829 by treasury 
minute and confirmed by the superannuation act of 1834 was de- 
servedly unpopular, because it was unjust and little better than a 
lottery. So bitter were the complaints made against it by the em- 
ployees that it was abolished in 1857 and followed, two years later, 
under the superannuation act of 1859, by the straight pension sys- 
tem of the last half century, which has also been found unsatisfac- 
tory, as explained above, and modified under the superannuation 
act of 1909. The contributory scheme required a flat contribution 
of 2^ per cent of salary from all employees receiving less than £100 
per annum, quite regardless of the age of the employee or any other 
condition, and 5 per cent from all receiving more than £100. The 
contributions of all employees were not merely commingled, as is 
generally the case where there is a flat-rate assessment; they were 
inextinguishably merged in the general exchequer. Not being funded 
or set aside for the accumulation of interest, it was not even known 
whether the sum total contributed was sufficient to pay the benefits 
allowed under the plan. There was a general impression that the 
rates were more than adequate to provide the benefits, and that the 
Government was making money at the expense of its employees. It 
is sometimes said that the British contributory plan was abandoned 
because the fund was found to be hopelessly insolvent. Such was not 
at all the case, for, in the first place, there was no fund to be insol- 
vent, and, in the second place, it was not known until about a year 
after the repeal of the superannuation act of 1834, when the investi- 
gating actuaries made their report, that the rates of deduction from 
salaries had been inadequate to provide the benefits under the act. 
Had there been a fund, it is true, however, that it would have become 
insolvent. The fact that eminent actuaries had generally shared 
the popular impression that the rates were more than adequate, until 
a minute and laborious investigation showed that quite the contrary 
was the fact is striking proof of the difficulty of fixing a flat rate 
of contribution which will be adequate in a given problem. The 



68 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

discovery that the contributions were inadequate merely showed the 
British public, hoAvever, a new weakness in a plan they had already 
set aside for other reasons. 

The plan was condemned by employees and actuaries alike as in- 
equitable as between different classes of employees. It made no 
provision for the refund of contributions in case of retirement or 
in case of death before reaching pensionable age. This confiscation 
of contributions was felt to be a particular hardship when an em- 
ployee died in harness leaving a family in want, after having con- 
tributed for years to the supposed superannuation fund. No serious 
objection was expressed to the principle of deductions from salaries; 
it was only the confiscation of those deductions that met with oppo- 
sition. A large body of the employees in fact presented a petition 
asking that the deductions be continued, but that they be returned 
the employees in the shape of insurance for their families. The fact 
that was resented was the fact that only one contributor out of every 
seven received any benefit from thus contributing part of his salary 
year after year, the other six dying or leaving the service before 
reaching the age at which they could claim a superannuation allow- 
ance. The system was denounced as a tontine. The situation was 
thus summed up by Dr. William Farr, chief of the Statistical Office 
of the Department of the Registrar General, and a famous actuary, 
before a select committee appointed by Parliament to investigate the 
subject, in the following words: 

Under this arrangement for granting allowances out of deductions you neces- 
sarily have to take the deductions from men who never derive any benefit 
whatever from the fund. This is, I conceive, an insuperable objection to the 
system. The families of the men who die are harshly dealt with; you take 
from the widow and fatherless children the deductions of the men who die to 
enable you to pension those who live. Now, it is impossible to convince the 
widows or the orphan children of the oflicers who die in the service that it is 
just to deprive them of the advantage derived from the contribution of the 
parent to enable you to pay the superannuation allowances of those oflEicers 
who are so fortunate as to live.^ 

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN AUSTRALIA. 

Particularly instructive, too, as showing the usual inadequacy and 
inequity of a contributory plan based on a flat-rate assessment is 
the experience of the colony of New South Wales, Australia. A plan 
was established there in 1884 which provided for a general deduc- 
tion of 4 per cent from salaries, with a Government subsidy of 
£20,000 a year for five years. No provision was made for paying the 
annuities on back services, and the Government subsidy of £100.000 
was not sufficient to cover them, nor was the 4 per cent deduc- 

^ See Report on Civil Service Superannuation. 1856. Minutes of Evidence, p. 176. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES, 69 

tion sufficient to cover future liabilities. Unsound thus in its very- 
constitution from the beginning, the fund was hastened to its de- 
mise by being improperly administered, as explained on page 46, 
to further the ends of politicians. The very first valuation, made 
only five years after its establishment, showed the fund to be insol- 
vent, and at the end of eleven years the plan was accordingly aban- 
doned. Even had it been properly administered, it must have ulti- 
mately come to grief, owing to the inadequacy of the contribution 
rates and the debt with which it was burdened at the outset, and 
even had the subsidy been sufficiently high and the rates quite ade- 
quate to meet all demands, the plan would have been unsatisfactory 
as inequitable between individual members, the amounts contributed 
in each case not being commensurate with the amounts received.^ 

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN CANADA. 

The Dominion of Canada has passed two unsatisfactory laws, both 
based on flat-rate assessments of salary for the benefit of its super- 
annuated civil employees. The first one, known as the superannua- 
tion act of 1870, was enacted three years after the formation of the 
Dominion and was based on flat-rate deductions from salary. Like 
all such plans, it is subject to the criticism of having been inadequate 
and inequitable. The deduction from salary was fixed at the rate of 
4 per cent per annum on salaries of over $600 a year and at 2^ per 
cent on those of less than that amount. Grossly inadequate as these 
rates were, they were still further reduced in 1873 from 4 to 2 per 
cent and from 2^ to 2| per cent. Since there was no intention on the 
part of the Government to make the contributions adequate for the 
whole expense of superannuation, it is perhaps hardly fair to criticize 
the law on that score, though proper to point out that had there been 
a superannuation fund, it must have become insolvent. Owing to 
the lowness of the rate of contribution, the employees were fairly 
well satisfied with the law, their criticisms being confined to one point 
only. They rebelled against the confiscation of those contributions, 
small as they were. The law made no provision for the refund of 
contributions in event of retirement before pensionable age, and this, 
taken in conjunction with its failure to make provision for widows 
and orphans, was held to be an injustice. It was thought that the 
abatements from salary should be returned to the dependents of the 
civil servant in the event of his death before pensionable age, and a 
campaign was made against the law on this ground. The history of 
superannuation schemes the Avorld over shows that employees are 
never content with a plan which requires the forfeiture of their con- 
tributions, and it is against all the instincts of human nature that 

^ See Civil Service Retirement, New South Wales, Australia, S. Doc. 420. 



70 EETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

they should be, especially when deductions from salary are made 
under compulsion. 

The overthrow of the Canadian superannuation act was accom- 
plished, however, on other grounds than the complaint brought by 
the civil employees. The contribution rates being inadequate to 
pay for the benefits allowed, the deficit had to be made up by the 
Government, and to this extent the contributory scheme under the 
act of 1870 was simply a civil pension. As already explained on 
page 45, it became the prey of political parties, advantage being 
freely taken by partisan leaders of those clauses in the act which 
allowed the removal of employees from the service on " abolition 
terms " and the addition of years to the period of their service 
when calculating the amount of superannuation allowance due them. 
The result of these abuses was that the superannuation system be- 
came a great expense to the country. The question became a political 
issue and undoubtedly contributed to the defeat of the Conservative 
party in the elections of 1896. The Liberal party came into power 
then pledged to effect a reform, and in fulfillment of its pledge closed 
the superannuation act of 1870 to all new entrants into the civil 
service and passed in lieu thereof the retirement act of 1898, which 
is now in force and has proved quite as unsatisfactory, in a different 
way, as will be explained later on. 

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN FRANCE. 

France has had in operation since 1853 a retirement plan for civil 
employees, which is based on a flat-rate deduction of 5 per cent from 
salary, and illustrates the weakness of all such plans. To the pen- 
sion fund thus created are also added deductions from the salaries 
of new entrants and deductions from promotion salaries, but even 
with these additional contributions from the employees, such are the 
uncertain and incalculable elements of any plan which requires com- 
mingling of assets that the public treasury, in 1902, was devoting 
80,000,000 francs a year to civil pensions, with every prospect that 
unless there were modifications in the law the amount would finally 
reach 129,000,000 francs; so that the retirement plan in vogue for 
civil employees is virtually a civil pension. In addition to this, the 
plan is unsatisfactory to the beneficiaries themselves because of arbi- 
trary and unjust distinctions made between employees of different 
ages and classes, there being no fixed relation between the amount 
which the particular employee contributes and the amount he may 
receive from the fund.^ 

1 See " Qiielques observations snr les ponsions de retraite des fonctionnaires civils et 
les projets de rgforme," by Georges Cahen, in " Revue Politique et Parlementaire," Sept. 
10, 1902, p. 497. 



KETIKEMENT OF SUPERANNUATED CIVIL- SERVICE EMPLOYEES. 71 

SAVINGS AND ANNUITY PLAN BASED ON ADEQUATE INDIVIDUAL CONTRI- 
BUTIONS THE IDEAL PLAN. 

Not one of all the foreign retirement schemes, so far as known, 
would seem to offer us a model. Germany, like England, grants a 
straight jDension to its civil employees, while other countries, such as 
France, Holland, Belgium, Austria, and Turkey, have plans which 
require flat-rate assessments on salaries. All civil pension and gen- 
eral fund assessment plans being discarded as undesirable and inequi- 
table, the investigator is brought, by a process of elimination, to con- 
sider as the soundest, the most equitable, and the most expedient plan 
of retirement for civil-service employees a savings bank or " savings 
and annuity plan" based on deductions from salary that are suffi- 
cient in each case for the purchase of an adequate annuity at the age 
of retirement. This is in accordance with the fundamental principles 
laid down at the beginning of this chapter, that the funds necessary 
for the payment of annuities on all services rendered after the adop- 
tion of the plan must be provided by the employees themselves by 
means of contributions which shall be sufficient to provide an ade- 
quate annuity, based on length of service and amount of salary, and 
which are so arranged as to be in no case excessive. The funds neces- 
sary for the payment of annuities on all services rendered prior to the 
adoption of the plan must be furnished by the Government, a sharp 
distinction thus being made, in the interests of the younger members 
of the service, between past services and future services. 

Savings-Bank Plan Approved bt Well-Known Actuaries. 

The simplicity of the savings-bank idea may account for the fact 
that it has escaped special consideration, and yet it has been sug- 
gested before and approved by well-known actuaries. 

The subject of pension funds, for instance, is discussed by Mr. 
Miles M. Dawson, a consulting actuary of New York, in an article 
in the Railway Age, in which he brings out the enormous perplexities 
and difficulties of the pension systems usually in force, especially 
those in which the fund is created partly by contributions from the 
employees and partly by contributions from the employers. He sup- 
ports his statements largely by a quotation from the highest British 
authority on the subject, Mr. Henry W. Manly, ex-president of the 
Institute of Actuaries, actuary manager of the "Old Equitable," 
and author of the most valuable actuarial treatise upon pension 
funds. Mr. Dawson's conclusion is that— 

Theoretically a pension fund could be created by exacting only the percentage 
of each salary which was found equivalent, as an increase of the whole pay 
roll, to the value of the pension. Practically this can not be done satisfactorily, 
because the employer must guarantee the sufficiency of the fund or leave its 



72 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

solvency doubtful, which is worse, and the rates of withdrawal and dismissal 
are too unreliable to count upon in fixing the deductions from salaries, because 
of the various demands described by Mr. Manly and because higher rates with 
lower benefits would seem unjust to employees entering the service at the higher 
ages. The only plan upon which the system can be operated without constant 
annoyance is that of making the scheme a mere savings bank until the retire- 
ment age is reached, the accumulation being returned at death, upon retirement 
because of ill health, upon withdrawal, or even dismissal.^ 

At a meeting of the Actuarial Society of America, held in Toronto, 
October 10 and 11, 1907, Mr. Benedict D. Flynn, assistant actuary of 
The Travelers Insurance Co. of Hartford, Conn., presented a paper 
on " Staff pension funds," in which he made special reference to the 
savings and annuity plan here under discussion, and commended it as 
avoiding all the perils of flat-rate assessment plans. After pointing 
out the great difficulty in creating a staff pension fund of obtaining 
a true measure of the rate of withdrawal, he said : 

And the salary scale, which is probably of greater importance in determining 
the amount of contribution than any other element, is most difficult to determine 
with reasonable accuracy. The presence of high-salaried offlicals in the older 
ages of the staff and the probability of change in the methods of advancement 
call for the greatest care and judgment in the adjustment of the salary scale. 
Even when the work is completed in the most skillful manner there is a grave 
question as to whether the result gives a fair estimate of the rate of increase 
in salaries to be experienced in the future. 

The fact that these assumptions with regard to the rates of withdrawal, 
retirement, and salary increase can not be made with accuracy, however, would 
not of itself be of great moment, provided the errors of judgment did not place 
the fund in an unsafe condition, if it were not for the fact that in such a fund 
individuals or certain classes are not treated equitably. 

Proceeding to consider " the question of the proper plan to use in 
the organization of a pension system," Mr. Flynn calls attention to 
the fact that — 

practically all pension schemes which depend in any degree upon compulsory 
contributions from members contain in their rules the privilege of return of 
the whole or part of the contributions with or without interest in case of with- 
drawal or death before age of retirement is reached. 

He then says: 

The question which naturally arslses is what necessity there may be for 
introducing the elements of mortality and withdrawal and of the erection of 
this elaborate statistical structure. Why not eliminate these assumptions en- 
tirely in so far as active members are concerned and simply accumulate the 
contributions at compound interest? This savings-bank idea, although referred 
to at various times throughout the discussion of staff pension funds, has never 
been given the consideration that would seem to be its due. * * * 

It is in the ease with which a plan based upon the savings-bank idea can be 
started and operated, however, that its chief advantage lies. An account can 
be kept for each member, and the proper return upon death or withdrawal or 

1 See " Pension funds," by Miles M. Dawson, F. I. A., Railway Age, Sept. 9, 1904. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 73 

the amount of pension upon retirement can be determined with accuracy. 
Another advantage which this plan possesses is in the case of change in the 
rules of the plan. Mr. Manly states that in his experience rules were changed 
about every five years and oftentimes without the knowledge and advice of the 
actuary who made the original calculations. Funds which start with simple 
benefits very often assume obligations of a more costly nature without a 
corresponding increase being made in the contributions required. In cases 
where such changes have been made and actuarial advice either ignored or not 
sought at all the funds have become insolvent with consequent loss to members. 
The result of increasing the benefits to the members under the savings-bank 
plan would simply be to cut down the gains to the fund and to reduce the 
surplus to be divided among the members — a simple adjustment compared with 
the situation in a fund built upon assumptions. It can be said, therefore, if 
the rules of a plan require the return of contributions with interest as will 
most plans of to-day which make payments by members compulsory, that the 
use of the savings-bank plan as outlined above has many advantages and that, 
even in cases where the benefits to members are more restricted, it will prove 
a safe and desirable method for starting and carrying the scheme until a reliable 
experience can be obtained. 

The value and adaptability of this method can best be shown in detail by 
considering a plan which has been proposed recently for the retirement of the 
employees of the classified branch of the United States civil service. 

Mr. Flynn then proceeds to describe the savings and annuity plan 
discussed in this report.^ 

Savings-Bank Plan Proposed fob Feance. 

The shortcomings of the law of 1853, under which the retirement 
plan for the civil employees of the French Government was estab- 
lished, have been noted above in the reference to Georges Cahen's 
article in the Revue Politique et Parlementaire. According to that 
same author, " the key to the problem " is to be found in a " system 
of savings-bank accounts" proposed in 1877 and again in 1891 by 
two great financiers, which was adopted by the Senate but rejected 
by the Chamber of Deputies. An acount of this project, translated 
from Cahen's article, is as follows: 

In 1873 the National Assembly sent to the Council of State a study of a propo- 
sition made by Admiral de Montaignac and three of his colleagues. The 
secretary of the Council, M. de la Roque, devoted himself to minute researches 
and laborious calculations. After two years of elaboration and discussion, a 
vast project issued from the Council of State, which served as a basis for 
that which M. Leon Say, minister of finance, announced in 1877, in the name 
of the Government. 

It creates a " provident fund ofiice," the duty of which is to bring together 
to the credit of each civil employee the amounts deducted from his salary and 
the proportional subsidies granted annually by the State. An individual 
account is opened for each employee, where the sums thus paid are charged up 
with compound interest at 4J per cent, reckoned each year. After two years of 

I See " Staff pension funds, with special reference to a retirement plan for United States 
civil-service employees," by Benedict D. Flynn, F. A. S., Transactions of the Actuarial 
Society of America, Vol. X, p. 275. 



74 EETIREMENT OF SUPBRajSTNUATED CIVIL-SERVICE EMPLOYEES. 

service the employee has a right to the portion of the fund which has come out 
of his salary After 15 or 20 years, and at the age of 45 or 50 years, according 
to circumstances, he can draw on the amount of the subsidies, under the form 
either of a life annuity or of a right to perpetual income. The passing over 
of this income to the widow is assured in certain cases and according to definite 
conditions. 

After being adopted, with modifications, by the Senate, upon the remarkable 
report of M. Gouin (March 24, 1879), the bill was rejected by the Chamber, 
conformably to the conclusions of M. Godefroy Cavaignac, who established the 
fact that in adopting it the advantages granted by the law of 1853 to the minor 
ofl3ceholders would be diminished and transitory charges, too burdensome and 
insuflaciently compensated by the economics of the distant future, would be 
imposed upon the treasury. 

The question was not again taken up until eight years later. On June 27, 
1891, M. Rouvier introduced a new bill, which was directly inspired by that of 
M. Leon Say, but account was taken of the criticisms which had brought about 
the latter's rejection. The interest in this later bill is calculated only at 3:| per 
cent. The rate of the subsidy decreases, that of the salary deductions in- 
creases, with the importance of the salaries. A common fund permits a supple- 
mentary grant to be made to the employees least favored. The employee be- 
comes proprietor of the fund accumulated from the deductions from his salary 
only after 10 years of service, but his widow and heirs have right to it in case of 
his decease after 5 years of service. The benefit of the subsidy is, however, 
acquired only at the end of 25 or 30 years. In this scheme, as well as in that of 
M. Leon Say, he can draw on this amount only in the form of an annuity, the 
principal ultimately going to the common fund. The national bureau of retir- 
ing pensions for old age, an old institution, protected from all interference with 
its funds by the State, was to have charge of this new service. 

Parliament never reached a discussion of the bill. Nevertheless, in certain 
of its principles * * * ought to be found, in our opinion, the key to the 
problem. * * * 

The tontine system of the law of 1853 causes the greater part of the abuses 
already mentioned; it entails an arbitrary and unscientific fixing of the 
amount of the pension ; it does not take into account the entire career of the 
pensioner; it necessitates percuniary sacrifices, increasing incessantly, always 
indefinite. The system of the " savings-bank account," on the contrary, permits 
a regulation of the rate of the pension according to the amount of the pay- 
ments made into the individual's fund; it makes the rate depend on the serv- 
ices rendered; at every period conserves the rights of the employees; it makes 
the fund held back from his salary his property, and thus takes away from 
this governmeutal act its character of spoliation. For annual charges in the 
budget it substitutes fixed subsidies, easily calculable. By the accumulation 
of interest it facilitates the formation of a reserve fund which will lighten the 
charges of the future. * * * it brings clearness and economy into the public 
finances. It is, to sum up, the only rational, just, scientific, and humane method. 

Reasons for Failure of Savings-Bank Plan in Canada and New Zealand, 

The suggestion that a savings-bank plan is the logical one to adopt 
for the retirement of Government employees sometimes encounters 
the criticism that such was the plan established in Canada by the re- 
tirement act of 1898, that it has not given satisfaction, and that a 



KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 75 

movement is even now on foot to set it aside and adopt a plan which 
shall depend, at least partly, on the Government for support. 

It is true that the Canadian plan is a compulsory savings system, 
pure and simple. The deductions from salary, together with interest 
at 4 per cent, compounded annually, are placed to the separate ac- 
count of the individuals from whose salaries the deductions are made, 
and they are his unconditionally on separation from the service. 
To this extent the Canadian plan resembles the savings and annuity 
j)lan embodied in the Perkins, Gillett, and Austin bills. There is, 
however, one radical difference between the two plans. The Canadian 
scheme is based on a flat-rate assessment of 5 per cent on all salaries. 
Since there is no commingling of assets, the uniformity of rate in the 
deductions from all salaries does not result in any inequity as between 
different classes of employees. Each employee gets back just what 
he sets aside, plus interest, and can not complain that any of his 
savings is diverted for the benefit of some older employee. An assess- 
ment of 5 per cent of salary is not, however, sufficient at the older 
ages to provide adequate benefits. The very complaint is made by 
the civil employees of Canada that a student of the subject- might 
expect to hear, that the annuities provided under the retirement act 
for employees who entered the service at the older ages are insufficient. 
Similar criticism can not be made of the savings and annuity plan 
here proposed, because deductions from salary are graduated accord- 
ing to the age at which the employee enters the service, and are 
sufficient in each individual case to create a sum that will purchase 
an adequate annuity at the age of retirement. Instead of a flat-rate 
deduction of 5 per cent of salary for all ages the deductions for re- 
tirement at the age of TO vary from 4.3 per cent in the case of an 
employee who enters the service at the age of 20 to 11,2 per cent 
in the case of the employee who enters at the age of 69, or is at that 
age when the plan takes effect. Not only are retirement allowances 
thus made adequate, but the general effect of such, a graduation in 
deductions is to discourage the entrance of old people into the serv- 
ice, which surely is as it should be. 

A compulsory savings scheme was tried in New Zealand from 1886 
to 1893 which was open to the same objection as that now brought 
against the retirement act of Canada. It was based on a uniform 
deduction of 5 per cent of salaries, the deductions credited separately 
to the account of each employee, but it proved inadequate as a 
retirement measure for those who entered the service late in life, 
and other measures were brought forward to take its place. 

Assessment on Salary Should be Based on Age of Entrance into Service. 

The necessity of making the percentage of salary deducted depend 
on the age of entrance into the service has been perceived by at least 



76 EETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLiOYEES. 

two well-known actuaries. One of the actuaries employed to make 
the valuation, on several occasions, of the New South Wales super- 
annuation fund was Mr. John B. Trivett. In 1902, on the occasion 
of the fifth and last actuarial valuation, Mr. Trivett made a very 
exhaustive report discussing the causes which had operated to bring 
about the failure of that fund and the principles which should under- 
lie a perfectly safe scheme of superannuation, arguing that " it would 
be in every way regrettable if the failure of a system which had been 
devised on an unsafe plan should provide so great a prejudice as to 
permanently prevent the adoption of some well-founded retirement 
fund, a most essential attachment to any efficient public service.*' 
Assuming retirement at the age of 60, and salaries in progress as at 
present in the New South Wales civil service, he stated that the con- 
tribution rates necessary to insure the sufficiency of a superannuation 
fund would have to vary with the entrance age as follows : ^ 

Under 20 years . 5 per cent per annum. 

20 and under 25 years 5J per cent per annum, 

25 and under 30 years 5f per cent per annum. 

30 and under 35 years 6 per cent per annum. 

35 and under 40 years 6i per cent per annum. 

When Mr. Morris Fox, the Government actuary of New Zealand, 
came to work out the plan for the retirement of New Zealand's civil 
employees, which was enacted into law in 1907 under the name of the 
" Public-service superannuation act," he evidently profited by the dis- 
astrous experience of New South Wales, and heeding the advice of 
Mr. Trivett carefully observed the fundamental principle that em- 
ployees' contributions must be fixed according to the age of entrance 
into the service or the age at the time of the passage of the law, and 
not according to some uniform percentage of salary. The laAV as 
finally enacted provides for contributions at 5 per cent of salary for 
ages under 30 at age of entrance, with an increase of 1 per cent for 
every five years' increase in the age of entrance or part thereof, until 
for ages exceeding 50 they reach 10 per cent. 

Two Important Principles Observed in Perkins, Gillett, and Austin Bills. 

In the observation of this important principle and one other, the plan 
embodied in the Perkins, Gillett, and Austin bills differs from all plans 
previously proposed in this country or tried in other countries, with 
the single exception of New Zealand, so far as known to the author. 
Besides graduating deductions from salary according to entrance 
age — and this is done with exactness for every age in the proposed 
plan rather than for every five years only, as in the New Zealand 
plan — the plan embodied in these bills makes a sharp differentiation 
between past liabilities and future liabilities. It is through using the 

1 See Civil Service Retirement, New South Wales, Australia, S. Doc. 420, pp. 43—44. 



E.ETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES, 77 

contributions of present employees to pay pensions on account of past 
services to old employees that most contributory schemes have come 
to grief, because it always haj)pens finally in such cases that when 
those who have been paying for years want to retire there is no money 
for them, as it has all been paid out as fast as it came in, instead of 
having been set aside and accumulated for them. The Perkins, Gil- 
lett, and Austin bills all provide that the annuities for services ren- 
dered prior to the adoption of the plan shall be paid by the Govern- 
ment, the contributions of present employees to be kept undisturbed 
for them until they are ready to retire. The New Zealand law like- 
wise provides that employees' contributions are not to be used for 
paying annuities on back services, but that those annuities are to be 
paid by the Government, which agrees to start the scheme with an 
annual payment of £20,000, the subsidy to be increased if necessar}^ 

While similar in these important essentials to the plan discussed 
in this report, the New Zealand plan is widely different in detail 
from that here proposed. The benefits under the plan would seem 
to be greater, in many cases, than the contributions of the individual 
employee would buy, and there is evidently no expectation that the 
plan will ever be self-sustaining, nor no very clear idea of what it is 
going to cost. It is not, therefore, a savings-banl^ scheme, but a civil 
pension to the extent of the Government subsidy. The superannua- 
tion fund consists of contributions from the employees, the annual 
subsidy, fines levied on public servants, and the interest on the fund. 
Out of this benefits are provided not only for the employees but for 
their widows and orphans as well. While thoroughly sound in prin- 
ciple, the objection may be brought against this plan, as against any 
other which looks to the Government for partial support, that the 
way lies open, as long as the Government is expected to make up a 
deficit, whatever it is, for abuses in administration that may lead 
to very great expense to the Government. 

Payment of a Liberal Rate of Interest the Government's Best Contri- 
bution, 

The present sentiment in Canada would seem to be toward the 
modification of the retirement system of that country in such a way 
as to call on the Government, as in New Zealand, to pay part of the 
expense. To the courtesy of Mr. M. D, Grant, of Liverpool, Nova 
Scotia, formerly Government actuary, the author is indebted for a 
memorandum concerning the Canadian situation, in which the fol- 
lowing paragraph occurs : 

Anyone who will analyze the commission bill or the Senate bill will be con- 
vinced that 5 per cent will not provide the benefits guaranteed. It is generally 
accepted as sound doctrine, however, that inasmuch as an effective retirement 
system benefits the employer no less than employed, the former should equi- 



78 EETIREMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYERS. 

tably contribute. That is to say, tlie industry or business itself should stand 
its share of the cost; and the modern trend is in the direction of making the 
respective shares contributed 50 per cent each. The 5 per cent from the serv- 
ice, therefore, is intended to be supplemented by 5 per cent from the Govern- 
ment, or, what would amount to the same result, the Government may guar- 
antee the actuarial solvency of the fund by lump contributions. Personally I 
am much opposed to these indefinite guarantees as contrary to the best interests 
of the public ; the more definite and known public financing is the better for aU 
concerned. As to the view that no matter whether the employer contribute ot 
not, the employee has always in the long run to bear the full cost of his own 
retirement, I believe that this is stretching an economic principle to the break- 
ing point ; but, admitting this, I believe it to be good policy that the reciprocal 
nature of the benefits derivable from a proper retirement system should be 
recognized by employers in some direct financial manner. 

It is difficult to see wherein this scheme has any marked superiority- 
over that embodied in Canada's superannuation act of 1870, Avhich 
was so grossly abused, as explained above, for political purposes. 
What is to prevent a similar situation developing again? Conceding 
that "the reciprocal nature of the benefits derivable from a proper 
retirement system" should be recognized by the Government, the 
author feels that this can be done much more wisely and safely than 
by fixing a flat and arbitrary assessment rate and then calling on the 
Government to supply the deficit, which is sure to result when there 
is no established and scientific relationship betAveen contributions and 
benefits. The Government can do its part in a way that will be fairer 
to the taxpayer and more helpful to the civil servant than any direct 
contribution would be. It can make its contribution in the form of 
a liberal rate of interest on the deduction from salary set aside by the 
employees. In this respect both the Perkins and Gillett bills could, 
in the opinion of the author, be greatly improved, for 3^ per cent 
can surely not be called " a liberal rate of interest." By doing this 
the Government not only keeps the plan self-supporting — doing away 
with the opprobrious term of "pensioner" and fortifying the self- 
respect of every contributor — but it shuts the door on all the possi- 
bilities of abuse and corruption that will surely creep in if direct con- 
tributions from the Government are allowed. Most important of 
all, the Government's help will be most bestowed where it is most 
deserved — on those employees who have been longest in the service, 
since the results of compound interest are much more marked after a 
long term of years than after a short period.^ 

The payment of a liberal rate of interest would also be much more 
economical for the Government than the direct appropriation of 
lump sums. By reason of the fact that with the help of compound 
interest at the rate of 3 per cent per annum the sum of a given con- 
tribution per annum will double itself in the course of a service of 

1 See interest chart, p. 102. 



RETIREMENT OF SUPEEANNUATED CI^'IL-SEEVICE EMPLOYEES. 79 

42 years, and at 3^ per cent in 36 years, and at 4 per cent in 31 years, 
it follows that the total contributions of an employee who serves 40 
years need be less than half the amount required by direct appro- 
priation from the Treasury to give the same pension. The Canadian 
or American Government could, therefore, far better afford to in- 
crease salaries by the amount of the contributions that will be neces- 
sary under a bill like Senate bill 1944, requiring the employees to 
meet unaided the full cost of their retirement, than to make direct 
appropriations to supplement the flat-rate contributions of the em- 
ployees. 

SAVINGS AND ANNUPTY PLAN ADOPTED BY ENGLISH FRATERNAL ORGANI- 
ZATION. 

While no government, in the opinion of the author, offers a model 
retirem^it plan which it would be safe to follow in all respects, the 
record of at least one actual experiment with a savings and annuity 
plan, which seems to be identical with the plan here proposed for the 
civil employees of the United States Government, is available. An 
account of this very humble and obscure experiment is given in an 
article by John Martineau, entitled " Pensions and voluntary effort : 
a suggestion and an experiment," which is contained in a volume of 
short papers on old-age pensions, published in London and New 
York in 1903. The contributors to the volume were all members of 
a committee on old-age pensions formed of persons interested in the 
controversy then going on in England with respect to the introduc- 
tion of an old-age pension bill. All had had a large personal and 
practical experience in the administration of friendly societies, of 
poor-law relief, or of charity. They were generally strongly averse 
to the movement for old-age pensions, and many of their reasons for 
opposing such a policy are stated in this book. The introduction sets 
forth some of the arguments advanced by friends of the movement, 
and then continues thus: 

But while such arguments as these are widely circulated, and schemes for 
old-age pensions are so frequently discussed and in some countries set on foot, 
it is hardly surprising that the attention of the people should be diverted from 
the consideration of the methods by which they might themselves create the 
funds required to provide for old age. What might be done is shown, for 
instance, by the Sheffield and Hallamshire district of the Ancient Order of For- 
esters. That district has imdertaken to provide an old-age pension fund for 
its own members. At the commencement of 1901, 428 members were contribut- 
ing to the fund ; at the close of it there were 468. Several courts having valua- 
tion surpluses have seen the desirability of converting their courts into pen- 
sion courts, and 19 of these have voluntarily required all future entrants to 
subscribe for " old-age pensions " as a condition of membership. There are now 
637 members in Sheffield assured of old-age pensions.' * * * 

1 See Old-Age Pensions : A Collection of Short Papers, 1903, p. 4. 



80 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

The members of the Ancient Order of Foresters above referred to are most 
of them agricultural laborers, whose weekly wage generally does not exceed 10 
shillings a week. * * * 

But, though wages are low, the district is healthy, * * * and what is very 
important, the lodge is being very well managed. At the beginning of 1896, 
after an existence of 32 years, it found itself with 166 members, and after all 
liabilities, present and future, were provided for, with a certified surplus of 
£1,072. * * * Should the contributions be diminished? Or should the money 
be taken out and shared among the members? 

A new departure was suggested. Could not the surplus be made the founda- 
tion for an old-age pension fund? It would not, of course, be enough of itself. 
The contributions must be raised to augment it. Was this practicable? 

And then came the difficulty. How about the older members? Three were 
over pension age already, and would be unable to contribute anything. Others 
were approaching it more or less nearly ; their contributions would not amount 
to much, and if all alike were to have a pension at a certain age an unfair and 
impossible burden would be thrown upon the younger members. To meet this 
difficulty an honorary member of the society offered to provide such a subsidy 
as would suffice, when added to the surplus, to enable every member, no matter 
what his present age, to receive a pension of 5 shillings at 65, without making 
an excessive addition to the contributions, and the addition being the same for 
all members, old or young. * * * 

The secretary thereupon prepared an elaborate statement of the assets and 
liabilities of the lodge, showing each member's interest therein separately, and 
the case with all its figures was submitted to Mr. Thomas Abbott, actuary, of 
Sheffield. 

His report is too long to quote in detail, but briefly the conclusion he arrived 
at was that, by the help of the surplus, increased by a subsidy of £1,200 from 
the honorary member, a pension of 5 shillings a week at the age of 65, and also 
immunity at that age from further contributions, might be secured to every 
member, no matter what his age, by raising the existing contributions rather 
less than 20 per cent. * * * 

New members entering the club do not benefit by the accumulated surplus, or 
by the subsidy by which it has been increased. Their contributions have to be 
such as are sufficient, unaided, to provide a pension. The necessary amount to 
be appropriated to the pension fund by new members was certified by Mr. 
Abbott to be : For persons entering at 18, 12s. 4d. a year, increasing, according 
to a scale for age, to 38s. 9d. a year for members entering at 39 — the highest age 
at which a member can be admitted. 

The scheme was formally submitted to a general meeting of the members, in 
September, 1896, and adopted. It was also made henceforth compulsory on all 
new members to contribute for a pension. On January 1, 1897, the new scheme 
came into operation, and the three members who were over 65 came at once into 
the receipt of their pensions. 

The scale for new members for securing first-class benefits ranges from 2s. 
id. per lunar month for a person entering at 18 to 4s. 8d. for a person entering 
at 39. This secures 12s. a week during sickness for 26 weeks; 6s. for the fol- 
lowing 26 weeks; 4s. during the remainder of the sickness; a pension of 5s., 
with cessation of contributions, at 65 ; and £12 for funeral," 

It will be observed that the principles followed in the development 
of this rural English experiment are exactly those laid down in the 

1 See Old-Age Pensions : A Collection of Short Papers, 1903, p. 181. 



I 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 81 

construction of the savings and annuity plan discussed in this report. 
The contributions are based on entrance age, and are sufficient to pro- 
vide the necessary allowance in each case at the required age. A 
separate account is kept with each individual. Allowances to the 
older members already past the pension age are paid out of a subsidy 
furnished by a friend, who corresponds in this British scheme to the 
Government paying annuities for back services under Part II of the 
plan for the United States civil servants. 

It is gratifying to learn, therefore, that, in 1908 when the subject of 
old-age pensions was agitating all England, an article by Sir William 
Chance appeared in the London Financial Review of Reviews in 
which the writer deprecated as unsound and unwise the proposed leg- 
islation, and called attention to the success of the rural scheme de- 
scribed above. Sir William Chance was chairman of the Council of 
the British Constitutional Association and is the author of many 
works upon the administration of the Poor Law. He said : 

Old age is undoubtedly a cause of destitution, but there is much evidence to 
show that the wage-earning classes have it in their power to provide against the 
time when they will be unable to work for their living, just as they have 
hitherto provided against sickness and death. When outdoor relief to the able- 
bodied was put an end to by the Poor Law Act of 1834 there were many who 
said that it was out of the power of these to make themselves independent. But 
history has shown that the anticipations of the Reformers of 1832 have been en- 
tirely fulfilled. The Friendly Societies have grown out of the ruins of the old 
Poor Law. It is well known that just about the time when Mr. Joseph Cham- 
berlain made old-age pensions a political cry, the societies were on the point of 
working out a scheme for providing old-age pensions for their members, as they 
could easily have done. Indeed, certain courts and lodges of the Manchester 
Unity and Foresters have made it obligatory on their members to insure for 
old-age pay as well as for sick pay and for death, and these courts and lodges 
have become most popular. But whenever they have made an effort to get their 
system applied over the whole of these two great Friendly Societies — and they 
have tried to do this more than once — they have at any rate up to the present, 
been met with the answer, " What is the use of it, when the State is going to 
provide the pension?"^ 

ADVANTAGES OF PROPOSED PLAN. 

It should be plain from the foregoing explanations that the sav- 
ings and annuity plan here proposed of retiring civil-service em- 
ployees is in no sense a pension scheme, since it does not look to the 
Government for support. It is self-sustaining, making no demand 
on the Government beyond the guaranty of a reasonable rate of in- 
terest on the money held by the Government and the expense of ad- 
ministering the plan. It will improve the service by putting into 
the hands of administrative officers power to remove the incompetent 



1 See " The cost of old-age pensions : Does foreign experience justify an Englisli experi- 
ment?" By Sir William Chance, Bart. (The Financial Review of Reviews, London, 
Feb.. 1908, p. 9.) 

74196°— S. Doc. 745, 61-3 6 



82 EETIEEMENT OF SUPEEANlSrUATED CIVIL-SERVICE EMPLOYEES. 

and superannuated. It will benefit the employee by stimulating his 
independence and self-respect while he is in office and by retiring 
him on a competence when he reaches old age. And it is as simple in 
its operation as a straight pension itself. 

XoTE.^Since this report has been in proof the special committee on retire- 
ment legislation of the Civil Service Reform Association of New York has sub- 
mitted a report in which they " lay down the lines which sane, fair, and 
economical pension legislation should follow." It is gratifying to note that the 
principles promulgated in their report agree with those here set forth. The 
full text of their report is as follows: 

CrviL Pensions in New Yoek State and City. 

EEPORT OF THE SPECIAL COMMITTEE ON RETIREMENT LEGISLATION OF THE CIVIL 
SERVICE REFORM ASSOCIATION OF NEW YORK. 

To the Executive Committee: 

Your committee appointed to consider the subject of retirement legislation in 
this State herewith submits its report. 

If a retirement system can be devised — and it seems to your committee that 
one can be devised — which, without imposing an undue burden upon the tax- 
payers, will tend to increase the efficiency of the public service through caring 
for the old age of those who have served long and faithfully, the New York 
Civil Service Reform Association should heartily favor the establishment of 
such a system and should aid in securing the necessary legislation to that end. 
In so far, however, as any proposed retirement system fails either to increase 
the efficiency of the public service or to be just and fair to the employees, or to 
be just and fair to the taxpayers, the association should oppose the proposal. 
And this because unless a retirement system does increase the efficiency of the 
service it has no excuse for existence, and because a retirement system that 
imposes unjust or unfair burdens either upon the employees or upon the tax- 
payers who employ them will prove progressively demoralizing in its operation. 

Approaching the subject from this point of view makes clear and sharp the 
distinction between a straight pension and a retiring allowance for superan- 
nuated employees. The former should be confined to civil employees engaged 
in hazardous occupations who suffer injury or death in the performance of 
duty. The entire expense of allowances or annuities granted in such cases 
should be paid out of the public treasury. They should be regarded as a part 
of the legitimate cost to the public of conducting a hazardous business. The 
ordinary civil employee is in a very different situation. He should be paid a 
proper and adequate compensation for the services he performs, and there would 
seem no valid reason why government employees who have been in receipt of 
such compensation should be erected into a special class to be supported in their 
old age at public expense. On the other hand, if the public employee is not paid 
a proper and adequate compensation for his services, any method which seeks 
to supply the deficiency by pensioning him when superannuated is unjust to 
the employee, economically wasteful, politically demoralizing, and detrimental 
to the efficiency of the service. 

A retiring pension provided in whole or in part at the public expense as a 
reward for long and faithful services inadequately paid for at the time they 
«re rendered is inevitably regarded as merely the deferred payment of moneys 
already earned. This works a double injustice, for it helps to make and keep 
the pay for current work inadequate, and the death of the employee before 
Ms superannuation will prevent his ever receiving the deferred portion of his 



EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 83 

compensation. It is equally unfair to tlie public, for it has been shown by ex- 
perience that each year an employee remains in the service with a portion of 
his pay held back until he shall reach the age of superannuation is an added 
obstacle to his discharge, though his work may have sensibly deteriorated. It 
would be far better from every point of view for the government to pay ade- 
quately and contemporaneously for the services as rendered than to weaken 
the discipline and impair the efficiency of the public service by deferring the 
payment of any portion of the earnings of its employees on the promise that if 
they desired to remain and were not discharged before they reached the age of 
superannuation they would thereafter be pensioned. 

Your committee is unreservedly in favor of the following propositions : 

Each employee in the civil service of the government should receive proper 
and adequate compensation for his services at the time the services are ren- 
dered. 

If the salaries of the government's civil employees are adequate, as compared 
with salaries for similar employment outside the public service, so that the 
employees can properly be expected to lay by a sufficient amount year by year 
to provide for their own old age, it is not reasonable, nor does it tend toward 
personal thrift and economy, for the government to add to such salary a pen- 
sion for life, at great expense to the taxpayers. 

It is quite possible and, indeed, probable that in certain cases the salary 
remaining to the employee after deduction has been made to provide for his 
support in old age will not be sufficient to permit him to maintain the standard 
of living to which his position entitles him. In such cases, however, it is clear 
that the salaries as now fixed are inadequate, and your committee therefore 
recommends that all such cases be inquired into and the necessary advances in 
salary made. 

That some private corporations have of late been establishing various pension 
systems represented to be wholly or in part at the expense of the employing 
corporation does not seem to your committee a convincing or even a strong 
argument for introducing such a system in the public service. In the first 
place, assuming it to be honestly believed that the expense of these pensions is 
borne in whole or in part by the employing corporation, we may be very sure 
that, if it turns out that any part of the pension is paid out of the capital of 
the corporation, that part of the pension will stop. We may be equally sure 
that, by so much as the payment of any part of the pension diminishes the 
normal return upon capital the pension will stop. In the second place, in 
each of these instances a private corporation is simply risking its own money 
to try an experiment that may or may not prove to be successful as the years 
go on ; while the Government has neither savings nor investments nor earnings 
of its own, and if it ventures upon such an experiment must pay the expense 
out of forced contributions from the taxpayers. The Government lacks the 
stimulus to keen watchfulness and economical management constantly present 
when one who fails in either respect must bear the loss occasioned. It would 
be rashly imprudent in these circumstances to create a large dependent class 
of voters directly interested in influencing legislation for its pecuniary profit. 

Your committee therefore recommends that the following principles be ob- 
served in drafting retirement legislation applicable to employees in the civil 
service : 

(1) A system of retiring annuities based upon length of service and an 
attained age of retirement should be provided by compulsory contributions 
from the employee's salary, which, invested by or under the supervision of the 
Government at a reasonable rate of interest, compounded annually, will be suffi- 
cient to provide the annuity at the age of retirement. The safety of the contri- 



84 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

butions and the reasonable rate of interest should be guaranteed by the 
Government. 

(2) An individual and separate account should be kept of the contributions 
of each employee. In case of his voluntary separation from the service before 
the age of retirement, these should be repaid to him. 

(3) In order that the retirement system should increase the stability of the 
service and add an inducement to capable men to remain in it, those who 
separate themselves from the service prior to the age of retirement should 
receive somewhat less than the full accumulation of interest upon their deposits 
with the Government. 

It is apparent that a system of retiring annuities embodying the principles 
favored in this report can be made to rest upon a sound actuarial basis, and in 
the case of a new entrant into the civil service need not require the contribution 
of an undue proportion of his salary in order to secure the benefits sought. At 
the present time, however, the data are almost wholly lacking for devising a 
sound plan for retiring, at reasonable cost to the taxpayers, the civil employees 
already in the public service. Those who are still young enough to provide for 
their own retiring annuities without contributing an unreasonable amount of 
their salaries should be required to do so ; but it is obvious that those already 
above a certain age can not afford to contribute from their salaries an amount 
sufficient to provide an adequate annuity on retirement. In the opinion of the 
committee, the Government should make up the balance between what such 
employees may reasonably be called upon to contribute and the amount needed 
to secure them an adequate annuity on retirement. Such investigations as have 
already been made into the conditions of employment in the Federal service 
lead us to hazard the opinion that a thorough investigation of the problem here 
will show that the amount which the Government is called upon to contribute 
in order to carry out this plan will not much exceed the loss to the Government 
occasioned by the retention of superannuated employees and the consequent 
loss in efficiency all along the line through the blocking of the way to promotion. 
What is needed at the present time is a thorough investigation which shall 
ascertain and set forth accurately the facts essential to determining the cost 
to the taxpayers of establishing upon a sound actuarial basis a retirement 
system applicable to employees already in the public service. We need to know, 
for example, the length of service and the age of each such employee, his salary 
at entrance, all increases since, and his present salary. It is not necessary to 
emphasize the unwisdom of enacting any retiring system into law without the 
prior official collation and publication of such necessary statistical information. 
Your committee, therefore, recommends the creation of a commission to be 
appointed by the governor for the purpose of making a thorough study and 
investigation of the entire subject and to report thereon with its recommenda- 
tions. The commission should have power to subpoena and examine witnesses 
and have an adequate staff of competent experts. 
Kespectfully submitted. 

Horace E. Deming, Chairman. 

H. De F. Baldwin. 

Charles A. Conant. 

Elliot H. Goodwin. 

Russell H. Loines. 
Special Committee on Retirement Legislation. 
April 12, 1911. 



CHAPTEE 11. 



MATHEMATICAL BASIS OF PROPOSED PLAN. 

The plan proposed is concisely stated as follows in the first para- 
graph of both the Perkins and Gillett bills (see pp. 210 and 215) : 

That beginning witli the first day of July next following the passage of this 
act there shall be deducted and withheld from the monthly salary, pay, or com- 
pensation of every officer or employee of the United States to whom this act ap- 
plies an amount, computed to the nearest tenth of a dollar, that will be sufficient, 
with interest thereon at three and one-half per centum per annum, compounded 
annually, to purchase from the United States, under the provisions of this act, 
an annuity, payable quarterly throughout life, for every such employee on 
arrival at the age of retirement as hereinafter provided equal to one and one- 
half per centum of his annual salary, pay, or compensation for every full year 
of service or major fraction thereof between the date of the passage of this act 
and the arrival of the employee at the age of retirement. The deductions 
hereby provided for shall be based on such annuity table as the Secretary of 
the Treasury may direct, and interest at the rate of three and one-half per 
centum per annum, compounded annually, and shall be varied to correspond to 
any change in the salary of the employee/ 

ANNUITY THE CENTRAL IDEA OF THIS PLAN. 

It will be seen from careful reading of the above paragraph that 
the annuity is the central idea of this plan. While provision is 
made in the bill for the withdrawal of accumulations on reaching the 
age of retirement in a lump sum if so desired, the amount set aside 
from month to month to create that sum is so calculated as to be 
just sufficient in each individual case to purchase the desired annu- 
ity. The amount desired as annuity is held to be 1^ per cent of salary 
for each year of service. This standard was not chosen arbitrarily 
as a basis, but was taken on the assumption that an employee's work- 
ing life is limited to 50 years (from the ages of 20 to TO), and that 
retirement on three-quarters pay after 50 years' service is not un- 
reasonable. Dividing 75 per cent of salary by 50 years of service 
gives 1^ per cent of salary for each year of service as a basis for 
computing annuities to be granted after other periods of service. 

1 The first paragraph of the Austin bill is identical with the above, except that pro- 
vision is made for interest " at five per centum per annum, compounded annually," instead 
of 3i per cent, and provision is made for an increase of salaries. 

85 



86 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 
VALUE OF ANNUITY DETERMINED BY MORTALITY AND INTEREST TABLES. 

The main object of this discussion is to show how the value of an 
annuity is determined and what deductions from salary must be 
made, at any age, from any salary, in order that a sum may be accu- 
mulated sufficient to purchase the desired annuity from the Govern- 
ment at the age of retirement. Since the price to be charged for an 
annuity depends on the table of mortality and the table of compound 
interest used in the computation, the mathematical basis of this plan 
will be discussed under the following heads and in the following 
order: Mortality tables, interest, annuities, and deductions from 
salaries. The four steps in our course of reasoning must be as 
follows : 

FOUR STEPS IN DISCUSSION. 
MORTALITY TABLES. 

(1) Up to the age of retirement the proposed plan is merely a com- 
pulsory savings arrangement, but on retirement from the service the 
employee is entitled to withdraw his savings in the form of an an- 
nuity payable to him as long as he may live, rather than in one lump 
sum. The annuity provision, to be sound, must be based on the law 
of averages as applied to human life, the so-called " law of mortality." 
This is the law on which the operations of all sound insurance com- 
panies are based. While nothing is more uncertain than the duration 
of any individual life, the study of statistics pursued during the last 
200 years among civilized nations shows that nothing is more certain 
than the average continuance of life. In various parts of the world 
during the last two centuries records have been kept showing the 
births and deaths of individuals. From these records tables have 
been constructed that are known as mortality tables, and upon these 
tables the average duration of life has been calculated. Since they 
were all compiled by different persons from different data, their re- 
markable similarity constitutes strong proof of their accuracy. 
While wonderfully alike in general, the accepted tables of mortality 
vary, however, in detail, according to the conditions of environ- 
ment^ — such as climate and occupation — to which the lives under ob- 
servation were subjected. 

While apparently small these differences are important, and it 
requires a careful study of the various tables in order to determine 
which one of them is best adapted to computing the rates for an- 
nuities on the lives of civil-service employees in America. Among 
those choosing annuities on retirement from the civil service will be 
some who will live beyond the usual span of life; but, on the other 
hand, there will be many who will die far short of it. It is impossible 
to determine which of the individuals living at age 70 will survive to 
age 100, but it is perfectly possible to determine with remarkable 



RETIEEMENT OE SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 87 

accuracy by the use of a table of mortality constructed on the basis 
of lives which were similar in their environment to those of the civil 
service how many individuals out of a large number will survive to 
that age. This being definitely known, we can thus adjust scientifi- 
cally and absolutely the amount of the annuities so that the sums for- 
feited by those who die early will carry the few to extreme old age. 
The first step, then, is to make a study of the various mortality tables 
and to select for our comjDutations the ones which best represent the 
conditions of life among employees of the United States Government. 



(2) The second step is to ascertain what rate of interest could be 
obtained on the savings of the employees and whether such rate of 
interest is sufficient, with a reasonable deduction from salary, to 
create the desired annuity at the age of retirement. In this connec- 
tion it is necessary to review the fundamental principles on which 
tables of interest are based and to take special note of the results 
obtained with compound interest at various rates. 

ANNUITIES. 

(3) The third step is to consider, theoretically and practically, the 
provision in the plan for granting annuities at retirement equal to 1^ 
per cent of the employee's annual salary for each year of service. In 
order to compute annuity rates under this plan, it is necessary to 
understand the method pursued in determining the value of an an- 
nuity. The longevity of life having a direct bearing on the con- 
struction of mortality tables, and consequently the computation of 
annuity rates, some attention should be given to the question whether 
or not it is increasing. How the conditions under which annuity 
contracts are granted differs from those under which life insurance 
contracts are issued should also be made clear, since the philosophy 
underlying the two is diametrically opposed and capable of creating 
confusion in the minds of those who have not given the matter much 
attention. 

DEDUCTIONS FROM SALARIES. 

(4) The fourth step is to determine what per cent of salaries at 
various ages of entrance into the service would have to be set aside by 
each individual in order to provide himself with an annuity on re- 
tirement equal to 1^ per cent of his salary for each year of service. 

MORTALITY TABLES. 

In order to understand why the three tables used in constructing 
this plan were adopted for this work in preference to others, it may 
be we]] to consider briefly the theory and history of mortality tables, 
show how a mortality table is constructed, and review the most im- 
portant ones in use. 



88 KETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

A mortality table may be defined as an instrument by means of 
which is shown the decrement by death from one age to another 
among a particular class of people. In other words, a table of mortal- 
ity shows how many children out of a great number born alive die 
in each year of age and exhibits the law of decrease through the whole 
extent of life. The formation of such a table was not an easy task, 
nor was it accomplished early in the history of mankind. In the 
beginning, tables of mortality were based on the death records of 
certain towns, which were necessarily incomplete and unreliable, but 
more recently they have been based on the censuses of population in 
various countries and on the records of life insurance companies. 
These recent tables are far more accurate than the early ones. Before 
the perfection of mortality tables life insurance calculations were 
necessarily little better than a gamble. 

CONSTRUCTION OF INIORTALITY TABLES. 

The ideal way of constructing a mortality table would be to have 
under observation for the whole period of their lives, a large number 
of persons — say 100,000 — born on a given day, and to record the num- 
ber dying in each year of age, and the number living at the end of 
each year of age. That would make a perfect mortality table. Such 
procedure is, of course, impossible in practice, but various means of 
accomplishing substantially the same results have been devised. The 
important consideration is the relative number at each age as com- 
pared with the number alive at the preceding age. The actual num- 
ber is of little consequence. In a brief way, the method adopted by 
insurance companies is as follows: 

As large a number of persons as possible is classified by age and 
placed in a special group for observation. A record is made of the 
number at each age living at the beginning and at the end of the 
year. By dividing the number living at a given age at the end of 
the year by the number living in that age at the beginning of the 
year the probability of living one year is determined. In like man- 
ner, by dividing the number dying during the year by the number 
living at the beginning of the year, the probability of dying within 
one year is obtained. As the number under observation is seldom 
large enough, when divided into individual ages, as described above, 
to give perfectly accurate probabilities, these differences must be 
reconciled by one of several methods of graduation, either graphic 
or mathematical. The simplest process is to plot the probability of 
dying at the various ages. The result obtained, if a line is drawn 
from one age to the next, and so on, will be a more or less irregTilar 
curve, showing, as might be expected, that from about the tenth year 
of age the probability of death increases with age. The irregularities 
of the curve are, as above explained, due to the inadequate number 



EETIREMENT OF SUPEEANNUATED CIVII/-SERVICE EMPLOYEES, 89 

under observation at the individual ages. By drawing a line through 
the zigzag curve thus obtained a new set of probabilities may be 
derived, with the irregularities due to the lack of original data for 
the individual years greatly ironed out, as it were. 

The accuracy of the graduation may be tested by placing in a 
column the number under observation at the various ages, and in a 
parallel column opposite each age the number of actual deaths that 
took place each year. In a third column opposite each age should 
be placed the number that would probably die, according to the 
graduated tables of probabilites, and in a fourth column should be 
noted the error, plus or minus. The accumulated error from year 
to year may be shown in an additional column, and if the graduation 
has been accurately performed, the pluses and minuses will in a 
number of years substantially offset one another.^ From this mate- 
rial a table of mortality may be deduced. This is accomplished by 
assuming a given number of persons as living at the beginning of 
the youngest age that is to be shown in the table. This number may, 
for the sake of convenience, be stated as 100,000, while the initial 
age in the table is usually 10, 15, or 20, although earlier ages may be 
used if desired. * 

The number shown as living at the beginning of the initial year is 
then multiplied by the probability of living, obtained as above de- 
scribed, and the number thus obtained represents the number of per- 
sons out of 100,000 at the initial age adopted for the table that, 
according to this experience, may be expected to survive to the begin- 
ning of the second year. By subtracting this number from 100,000 the 
number that might be expected to die during the first year is obtained. 
This number is noted on the table opposite 100,000. By multiplying 
the number thus computed as living at the beginning of the second 
year by the probability of living during that year the number of 
persons that may be expected to survive to the beginning of the 
third year is obtained. By subtracting this number from the number 
living at the beginning of the second year the number that might be 
expected to die during the second year is obtained. This number is 
noted on the table opposite the number living at the beginning of 
the second year. By continuing this process on to the death of the 
last survivor, using the probability of living in each instance corre- 
sponding to the particular age, a table of mortality is constructed 
such as forms the basis of all life-insurance calculations in which 
there is a life contingency. 

Generally speaking, there are two kinds of mortality tables — insur- 
ance tables and annuity tables. The principal difference between 
them is this: The insurance table usually contemplates a length of 



1 For the purposes of this explanation it is not thought desirable to go into the details 
of graduation by mathematical formulae. 



90 EETIEEMElSrT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

life somewhat shorter than the fact, whereas the annuity table con- 
templates a length of life somewhat longer than the fact. This dis- 
crepancy is maintained as a margin of safety, since the insurance 
table is used to calculate the premiums on policies calling for the 
payment of a definite sum on the failure of the life insured, whereas 
the annuity table is employed to compute the rates for annuities 
which must be paid as long as the life continues. 

EAKLY ROMAN TABLES. 

While we find traces of speculation concerning "the theory of 
probabilities" as far back as the time of Plato and while we know 
that all civilized people have followed the practice of registering 
births and deaths, we have no knowledge that anyone ever attempted 
to make a mortality table before the third century of the Christian 
era. Such a table was actually constructed, however, by the great 
jurist, Ulpian, during the reign of the Emperor Alexander Severus 
and was used as a basis for calculating annuities. 

EARLY GERMAN TABLES. 

The first mortality table of the Christian era was constructed by 
Graunt from data obtained from transcripts of deaths entered in 
London registers. The second mortality table was published in 1693 
by the astronomer Halley, who secured his data from the registers of 
Breslau, Germany, which was the only place where a record of the 
ages of the dead was kept. His work was entitled "An Estimate of 
the Degrees of Mortality of Mankind, Drawn from Curious Tables 
of the Births and Funerals at the City of Breslau," and laid the 
foundation of the science of life contingencies, Halley taught with 
great clearness the conditions needful for the formation of rates of 
mortality; but mortality tables constructed from data supplied by 
parish registers proved to be in serious error where used for com- 
puting annuities. As the registers furnished no information as to 
the number who were exposed at any age, it was assumed " that the 
data fairly represented the mortality which would successively apply 
to a group equal to the whole number of decedents born on the same 
day * * *. It must be evident that, unless the population were 
precisely stationary, the births balancing the deaths each year, and 
nobody removing from or into the field of observation, the assump- 
tion that the mere number of deaths during any period could furnish 
a radix for a mortality table constructed as if from lives observed 
from the time of birth was sure to be erroneous. As the populations 
of Breslau and other places which furnished statistics used to com- 
pile these tables were in each case increasing, it followed that the 
radix was in each case too small to correctly represent the mortality 
at the younger ages, and this in turn made the mortality proportion- 



EETIEEMENT OP SUPEEAlSTlsrUATED CIVIL-SERVICE EMPLOYEES. 91 

ately too small at older ages. "Where these tables were used for in- 
surances, this proved an error on the safe side ; where used for annui- 
ties, it was an unfortunate error." ^ 

EARLY ENGLISH TABLES. 

After Halley there were many investigators, some of whom de- 
duced mathematical formulas from such records as they had, while 
others improved the methods of making records. About TO years 
after Halley the registration of persons living and dying in Stock- 
holm from 1755 to 1763 was classified and arranged by Dr. Richard 
Price into a mortality table. John M. Holcombe speaks of this as 
" the first accurate deduction ever made of the length of life in a 
city," ^ and comments on the fact that the old Roman Ulpian's cal- 
culations were remarkably close to those reached 15 centuries later 
by Dr. Price. 

THE NORTHAMPTON TABLE. 

From the records of the town of Northampton Dr. Price con- 
structed in 1783 a table which became widely known as the North- 
ampton table and which, though in some respects unreliable, was 
adopted as the standard of life-insurance calculations. According 
tc Moir^ it showed excessive mortality and large profits were made 
by the life assurance companies which used its figures, whereas heavy 
losses were sustained by the annuity companies which adopted it, 
because their annuitants lived longer than the table indicated. 

THE CARLISLE TABLE. 

Since Dr. Price many mathematical experts have tried their skill at 
constructing tables of mortality. In 1815 the Carlisle table was 
prepared by Joshua Milne from the census of the population of two 
parishes in Carlisle in 1780 and the deaths in the same parishes from 
1779 to 1787. It was scientifically constructed and very satisfactory. 
Even to-day it is considered of great value, especially in the calcula- 
tion of survivorship benefits. 

MORTALITY TABLES BASED ON EXPERIENCE OF LIFE INSURANCE COMPANIES. 

As life assurance had its earliest development in England, it was 
natural that more attention was paid there than elsewhere to the 
making of mortality tables, since they are the basis of life insurance 
as a science. The first life insurance company organized on a really 
scientific foundation, with premiums graded according to age and 
based on a mortality table, was the Old Equitable of London, incor- 

1 See Practical Lessons in Actuarial Science, by Miles M. Dawson, p. 60. 
* See Yale Insurance Lectures, p. 311. 
See Life Assurance Primer, by Henry Moir, p. 38. 



92 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

porated in 1762, and still doing business. The actuary or manager of 
the Old Equitable was William Morgan, a nephew of the celebrated 
Dr. Price, by whose precepts he profited. No better example than 
this oldest of English societies could be found to prove that no life 
insurance institution established on a sound scientific basis need ever 
fail, if managed with honesty and prudence, for it has been demon- 
strated again and again that the rate of mortality is an absolutely 
reliable basis for calculating the charges that must be made to meet 
the obligations of life assurance. As one writer on the subject has 
well said: 

There is nothing more uncertain than any given human life, and yet by a 
law of nature as certain in its operations as that which brings seedtime and 
harvest, the rate of mortality among large numbers of people, for periods of 
years, is uniform. 

EECENT ENGLISH GOVERNMENT TABLES. 

During recent years the English Government has given valuable 
aid in the matter of constructing and perfecting mortality tables, 
especially through the work of its statistical bureau and the experi- 
ence of its life offices. One important work done by the English 
Government has been the formation, on five different occasions, of 
mortality tables from census returns. " In 1897," says Moir,^ " a 
most usefuL series of tables was submitted, with details of mortality 
in 100 different occupations, showing not only the mortality rates 
in those occupations, but giving also the causes of death." The popu- 
lation table which has received most prominence was published in 
1861, and is known as The Healthy English Table. It was formed 
by Chief of the Statistical Office of the Department of the Registrar 
General, Dr. William Farr, from census returns of 1851 and the records 
of the births and deaths from 1848 to 1853, inclusive, in 63 of the 
healthiest registration districts of England and Wales. The mor- 
tality of the sexes was investigated separately. 

THE COMBINED OR ACTUARIES* TABLE. 

In the meantime, the experience among life assurance companies 
had increased so greatly that they found themselves in possession of 
exceptional facilities for the construction of mortality tables. Know- 
ing the ages of all policy holders and the ages at which they died, it 
was easy for them, as the field of observation Avidened, to compile 
very valuable statistics from their records. The first mortality table 
compiled from the records of a life assurance company was published 
in 1834 by Mr. Arthur Morgan, actuary of the Old Equitable of 
London. The experience of one company is not, however, nearly so 

1 See Life Assurance Primer, by Henry Moir, p. 39. 



EETIREMBNT OF SUPERANNUATED CI\ IL-SEBVICE EMPLOYEES. 93 

valuable as the combined experience of several companies, since it is 
very possible that peculiar circumstances in the case of any one 
company may have caused its mortality experience to be exceptionally 
high or unusually low. 

The combined experience of 17 English companies was accordingly 
collected and formed into a table, which is known in this country as 
the Combined Experience or Actuaries' Table of Mortality, but in 
England goes by the name of the Seventeen Offices' Table of Mortal- 
ity. This compilation was begun in 1838 by a committee of actuaries 
aiid was based on 62,537 insurances. The results were first published 
in 1843, in London, in a book by Jenkin Jones, entitled "A Series of 
Tables of Annuities and Assurances Calculated from a New Rate of 
Mortality Amongst Insured Lives." Owing to the indorsement of 
the Hon. Elizur Wright, commissioner of life insurance of Massachu- 
setts and the father in this country of " the square deal " in life insur- 
ance, the Combined or Actuaries' Table, was adopted as the legal 
standard in Massachusetts, and has been popular throughout the 
United States. In Great Britain, on the contrary, the Combined 
Table has been superseded by the Institute of Actuaries' H'" and H' 
tables, commonly spoken of as the Healthy Male and Healthy Female 
Tables. 

THE ACTUARIES' H"" AND H* TABLES. 

These tables were constructed from data supplied by 20 British 
companies belonging to the Institute of Actuaries, and are accordingly 
often spoken of as the Twenty Offices' Tables. The most important 
of these tables is that known as the Healthy Male or H"" Table. 
It was constructed in 1869 on the lives of about 140,000 healthy males. 
Finding that the low mortality of recent entrants had practically 
disappeared after five years, another table was formed called the 
H™(^) Table, in which the first five years from entry were excluded 
from the statistics. In this table the mortality rates are higher than 
those of the H™ Table. A separate table was formed dealing with 
healthy female lives, the H* Table. Although popular in England 
and Canada, this table has never found favor in the United States. 

AMERICAN EXPERIENCE TABLE. 

About the same time that the Institute of Actuaries published its 
Healthy Male and Healthy Female Tables in England a table was 
published in the United States that has come to be very popular, 
and is known as the American Experience Table of Mortality. It 
was constructed mainly on the experience of the Mutual Life In- 
surance Co. of New York during its first 15 fiscal years, ending 
February 1, 1858. The experience was compiled and the table con- 
structed by Mr. Sheppard Homans, the actuary of the Mutual Life. 



94 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

He is said to have availed himself of all the other statistics at hand 
for ascertaining the laws of mortality applicable to healthy insured 
lives in this country. In graduating and modulating the American 
table Mr. Homans also made use of all the standard European 
tables for the purpose of comparison. 

The first actuary of the Mutual Life Insurance Co. had been 
Prof. Charles Gill, who appears to have been the first American to 
frame a mortality table and compute independent rates. He was 
the author of a book entitled "Assurance Tables," and in 1851 he 
made a report upon the company's experience for its first eight years 
among its members residing in the Northern States. It is highly 
probable that Prof. Gill's work aided Mr. Homans in his. 

Mr. Homans's first report was made in 1858, and included an 
adjusted table of mortality based on the whole experience of the 
company for the 15 years. In the years 1859 and 1860 Mr. Homans 
continued the compilation of the company's experience, and in 1860 
framed what was afterwards known as the American Experience 
Table of Mortality. While based in the main upon the experience 
of the Mutual Life Insurance Co. it represented, in a considerable 
degree, Mr. Homans's personal opinion of the probable rate of 
mortality among insured lives after the immediate effects of medical 
selection had worn off. " It is very remarkable," says Mr. D. P. 
Fackler, "that this table, based largely upon judgment rather than 
actual experience, should be so nearly the same as if it had been 
based on the Makeham formula of several years later.^ 

THE BRITISH OFFICES' TABLES. 

The most recent and most valuable mortality experience published 
is that of the " British Offices." It is the result of an exhaustive in- 
vestigation of the subject made by a joint committee of the Institute 
of Actuaries and of the Faculty of Actuaries. A large number of 
tables, both life and annuity, based on the combined experience of 60 
British companies covering a period of 30 years — from 1863 to 
1893 — were produced. The most distinguished actuaries of the world 
had charge of the work, and bestowed more care and scientific ac- 
curacy on the assortment of the material from which the tables were 
constructed than was ever before given to such a task. 

TABLES USED IN PREPARING THIS PLAN. 

Three different mortality tables have been employed in the con- 
struction of the retirement plan proposed in this report ; the British 
Offices' Select Annuitants' Mortality Table in connection with Part I, 

1 See article entitled " The genesip of the American Experience Table," by David Parka 
Fackler, in the Transactions of the Actuarial Society of America, Vol. X, p. 509. 



KETIEEMENT OF SUPEKANlSrUATED CIVIL-SERVICE EMPLOYEES. 95 

and the American Experience Table of Mortality, together with the 
Combined or Actuaries' Table of Mortality, in connection with 
Part II. 

REASONS FOB USING BRITISH OFFICES* SELECT ANNUITANTS' MORTALITY TABLE AS 
THE BASIS FOR ANNUITY RATES UNDER PART I OF PLAN. 

The first necessity for a mortality table presents itself in connec- 
tion with this plan in computing the rate which the Government 
must charge its employees for annuities due them on reaching the 
age of retirement. The British Offices' Select Annuitants' Mortality 
Table is recommended for that purpose. 

In constructing Part I of the proposed plan it was necessary to 
select a mortality table for computing the rates which the Govern- 
ment should charge its employees for annuities purchased with their 
savings. Since, under the bill, the employees are to be given the right 
to take their savings on retirement either in a cash sum or in the 
form of an annuity, it was very important to choose a table with a 
mortality sufficiently low to overcome this selection against the Gov- 
ernment. Manifestly, retiring employees would choose between the 
cash and annuity according to their condition of health. An em- 
ployee in poor health would in all cases prefer a cash sum, whereas 
one in the enjoyment of excellent health would be likely to choose the 
annuity. 

Table V shows the number of persons living at all ages according 
to various tables of mortality. A convenient method of comparing 
the longevity of mortality tables is by means of the " expectation of 
life," which is the average number of years which persons of a given 
age will survive. The expectation at all ages, according to these 
tables of mortality, is shown in Table VI. It will be noted that the 
expectation of life under the British Offices' Select Annuitants' Table 
is greater than under any other table.^ 

The insurance companies in this country have issued few annui- 
ties, and their experience therefore has not been very broad. On the 
other hand, annuities in Great Britain have been popular for many 
years, and the British companies have had a broad experience in is- 
suing them. For these reasons, the fact, as shown above, that the 
British Offices' Select Annuitants' Table shows a low mortality as com- 
pared with other tables, and the fact that the British comjDanies have 
had a large experience as compared with American companies, in 
issuing annuities, that table is recommended as the safest and best 

1 The " expectation of life " has no relation whatever to the time when any individual 
is likely to die, or to the time when death is most likely to occur. It is merely an aver- 
age, and can not be used in computations involving compound interest. It forms, how- 
ever, a most convenient means of comparing the longevity of mortality tables, and is 
derived by dividing the sum of the tabular number living above the given age, by the 
number living at the age and adding one-half year to the quotient. 



96 EETIREMENT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

basis for the annuity rates under Part I of this plan. If the rates, 
high as they are, should prove inadequate, the bill provides for the 
adoption of a new table by direction of the Secretary of the Treasury.^ 

Table V. — Shotoin^ num'ber living at all ages under various tables of mortality. 



Age. 



20 years... 

21 years . . . 

22 years... 

23 years... 

24 years 

25 years 

26 years. . . 

27 years... 

28 years. .. 

29 years 

30 years 

31 years. .. 
o2 years 

33 years 

34 years... 

35 years. . . 

36 years 

37 years. . . 

38 rears. .. 

39 years... 

40 years. . . 

41 years.. . 

42 years. . . 

43 years. .. 

44 years... 

45 years. . . 

46 years. . . 

47 years. . . 

48 years. . . 

49 years... 

60 years. . . 

61 years... 

62 years. . . 

63 years. . . 

64 years... 
55 years... 

66 years... 

67 years... 

68 years... 

59 years... 

60 years... 

61 years... 

62 years... 

63 years... 

64 years... 

65 years... 

66 years... 
07 years... 

68 years... 

69 years... 

70 years... 

71 years... 

72 years... 

73 years... 

74 years... 

75 years... 

76 years... 

77 years... 

78 years... 

79 years... 

80 years... 

81 years... 

82 years... 

83 years... 

84 years... 

85 years... 

86 years... 

87 years... 

88 years... 

89 years... 

90 years... 



American 
experience 

table of 
mortality. 



637 
914 

192 
471 
751 
032 
314 
596 
878 
160 
441 
721 
000 
277 
551 
822 
090 
353 
611 
862 
106 
341 
567 
782 
985 
173 
345 
497 
627 
731 
804 
842 
841 
797 
706 
563 
364 
104 
779 
385 
917 
371 
743 
030 
,230 
341 
,361 
,291 
133 
,890 
,569 
178 
,730 
243 
,73S 
237 
7iil 
330 
961 
,670 
474 
383 
419 
, 603 
955 
,485 
,193 
,079 
140 
,402 
847 



Northamp- 
ton table of 
mortality. 



5,132 

5,060 

4,985 

4,910 

4,835 

4,760 

4,085 

4,610 

4,535 

4,460 

4,385 

4,310 

4, 235 

4,160 

4,085 

4,010 

3,935 

3,860 

3,785 

3,710 

3.635 

3,559 

3,482 

3,404 

3,326 

3,248 

3,170 

3,092 

3,014 

2,936 

2,857 

2,776 

2,694 

2,612 

2,530 

2,448 

2,366 

2,284 

2,202 

2,120 

2,038 

1,956 

1,874 

1,793 

1,712 

1,632 

1,552 

1,472 

1,392 

1,312 

1,232 

1,152 

1,072 

992 

912 

832 

752 

675 

602 

534 

4t;9 

406 

346 

289 

234 

186 

145 

111 

83 

62 

46 



Farr's Eng- 
lish table 
No. 3. 



Combined 
or actua- 
ries' table of 
mortality. 



333, 608 

330, 844 

328,043 

325,207 

322, 339 

319,442 

316,510 

313, 562 

310,581 

307,572 

304,534 

301,466 

298,366 

295,232 

292, 061 

288,850 

285,596 

282, 296 

278,944 

275,538 

272,073 

268,544 

264, 948 

261,280 

257,534 

253,708 

249, 796 

245,795 

241,700 

237,508 

233,216 

228, 821 

224, 195 

219,437 

214, 552 

209, 539 

204,395 

199,114 

193, 686 

188, 102 

182,350 

170,421 

170, 303 

163,989 

157,474 

150, 754 

143,833 

136,718 

129, 421 

121,963 

114,370 

106, 675 

98,919 

91, 149 

83,416 

75, 777 

68, 294 

61,026 

64, 036 

47,381 

41,115 

35,283 

29,922 

25,060 

20,711 

16,877 

13,540 

10.709 

8, 325 

6, 360 

4,770 



93, 268 
92,588 
91,905 
91,219 
90,529 
89, 835 
89,1.37 
88, 434 
87,726 
87,012 
86, 292 
85,565 
84, 831 
84,089 
83,339 
82,581 
81,814 
81,0.38 
80,253 
79,458 
78, 653 
77,838 
77,012 
76,173 
75,. 316 
74,435 
73,526 
72,582 
71,601 
70,580 
69,517 
68, 409 
67,253 
66,046 
64,785 
63,469 
62,094 
60, 658 
59,161 
57,600 
55,973 
64, 275 
52,505 
50, 661 
48,744 
46, 754 
44, 693 
42, .565 
40, 374 
38, 128 
35,837 
33,510 
31,159 
28,797 
26, 439 
24, 100 
21,797 
19.. 548 
17,369 
15,277 
13,290 
11, 424 
9, 694 
8,112 
6, 685 
5,417 
4,. 306 
3,348 
2,5.37 
1,864 
1,319 



British of- 
fices' an- 
nuitants 
(select). 



100,000 
99,329 
98,655 
97,979 
97,299 
96,616 
95,928 
95,235 
94,536 
93, 829 
93, 116 
92, 394 
91,663 
90,921 
90, 166 
89,400 
88,620 
87,823 
87,011 
86, 179 
85,. 327 
84,4.53 
83, 555 
82, 631 
81,678 
80,096 
79,680 
78,630 
77,541 
76,413 
75,240 
74, 022 
72,754 
71,4.34 
70, 060 
OS, 627 
67, 134 
65,577 
63,954 
62, 262 
60, 500 
58,665 
66, 758 
64, 776 
62, 722 
50, 594 
48,397 
46, 133 
43,806 
41,423 
38, 991 
36,519 
34,019 
31,502 
28,983 
26, 477 
24, 002 
21,576 
19,217 
16, 945 
14, 780 
12, 7.37 
10,835 
9,086 
7,502 
6,090 
4,853 
3,790 
2,895 
2, 1.59 
1,568 



British of- 
fices' an- 
nuitants 
(ultimate). 



97,691 
97,004 
96,312 
95,615 
94,911 
94, 201 
93,483 
92, 756 
92,020 
91,273 
90,514 
89,743 
88,957 
88,155 
87,336 
86,497 
85,639 
84,757 
83, 852 
82, 920 
81,959 
80,968 
79,944 
78,883 
77,785 
76, 645 
75,462 
74, 232 
72, 952 
71,619 
70,231 
68,785 
67, 276 
65,704 
64,065 
62, 356 
60,577 
68,724 
56,799 
54,799 
62, 725 
50,579 
48,362 
46,079 
43, 734 
41,333 
38,884 
36,396 
33,881 
31,351 
28,820 
26, .305 
23,823 
21,392 
19,031 
16,760 
14, 598 
12,561 
10.668 
8,930 
7,3.59 
5,961 
4,739 
3,091 
2,812 
2,091 



1 See last sentence of sec. 1 of the proposed hill siven at the end of this report. 
* Standard for annuities under the laws of New York State. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 97 

Table V. — Showing number living at all ages under various tables of 

mortality — Continued. 



91 years.. 

92 years.. 

93 years.. 

94 years.. 

95 years.. 

96 years.. 

97 years.. 

98 years... 

99 years.. 

100 years. 

101 years. 

102 years. 

103 years. 

104 years. 

105 years. 

106 years. 

107 years. 



American 
experience 

table of 
mortality. 



462 

216 

79 

21 

3 



Northamp- 
ton table of 
mortality. 



Farr's Eng- 
lish table 
No. 3. 



3,510 

2,531 

1,787 

1,234 

833 

548 

352 

220 

134 

79 

46 

25 

14 

7 

4 

2 

1 



Combined 
or actua- 
ries' table of 
mortality, 



892 

570 

339 

184 

89 

37 

13 

4 

1 



British of- 
fices' an- 
nuitants 
(select). 



1,107 

757 

501 

319 

195 

114 

64 

33 

17 

11 

6 

3 

1 



British of- 
fices' an- 
nuitants 
(ultimate). 



1,513 

1,064 

725 

477 

303 

184 

107 

59 

31 

15 

7 

3 

1 



McCUn- 
tock's 

annuity 
table. 



13,689 

9,512 

6,387 

4,129 

2,561 

1,518 

857 

457 

230 

108 

48 

19 

7 

2 

1 



Table VI.- 



-Showing expectation of life at all ages under various tables of 
mortality. 



Age. 



American 
experience 

table of 
mortality. 



Actuaries 
or com- 
bined. 



Northamp- 
ton. 



Farr's En- 
glish table 
No. 3. 



Carlisle's. 



British 

offices' 

aimuitants 

(select). 



British 

offices' 

annuitants 

(ultimate). 



20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years.. 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years 

47 years 

48 years 

49 years 

50 years 

51 years 

52 years 

53 years 

64 years 

55 years 

56 years 

57 years 

58 years 

59 years 

60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

74196 



42.20 
41.53 
40.85 
40.17 
39.49 
38.81 
38.12 
37.43 
36.73 
36. 03 
35.33 
34.63 
33.92 
33.21 
32.50 
31.78 
31.07 
30.35 
29.62 
28.90 
28.18 
27.45 
26.72 
26.00 
25.27 
24.54 
23.81 
23.08 
22.36 
21.63 
20.91 
20.20 
19.49 
18.79 
18.09 
17.40 
16.72 
16.05 
15.39 
14.74 
14.10 
13.47 
12.86 
12.26 
11.67 
11.10 



41.49 
40.79 
40.09 
39. 39 
38.68 
37.98 
37.27 
36.56 
35.86 
35.15 
34.43 
33.72 
33.01 
32.30 
31.58 
30.87 
30.15 
29.44 
28.72 
■28.00 
27.28 
26.56 
25.84 
25.12 
24.40 
23.69 
22.97 
22.27 
21.56 
20.87 
20.18 
19.50 
18.82 
18.16 
17.50 
16.86 
16.22 
15.59 
14.97 
14. 37 
13.77 
13.18 
12.61 
12.05 
11.51 
10.97 



33.43 
32.90 
32.39 
31.88 
31.36 
30. 85 
30.33 
29.82 
29.30 
28.79 
28.27 
27.76 
27.24 
26.72 
26.20 
25.68 
25.16 
24.64 
24.12 
23.60 
23.08 
22.56 
22.04 
21.54 
21.03 
20.52 
20.02 
19.51 
19.00 
18.49 
17.99 
17. 50 
17.02 
16.54 
16.06 
15.58 
15.10 
14.63 
14.15 
13.68 
13.21 
12.75 
12.28 
11.81 
11.35 
10.88 



39.48 
38.80 
38.13 
37.46 
36.79 
36.12 
35.44 
34.77 
34.10 
33.43 
32.76 
32.09 
31.42 
30.74 
30.07 
29.40 
28.73 
28.06 
27.39 
26.72 
26.06 
25.39 
24.73 
24.07 
23.41 
22.76 
22.11 
21.46 
20.82 
20.17 
19.54 
18.90 
18.28 
17.68 
17.06 
16.45 
15.86 
15.26 
14.68 
14.10 
13.53 
12.96 
12.41 
11.87 
11.34 
0.82 



41.46 
40.75 
40.04 
39.31 
38.59 
37.86 
37.14 
36.41 
35.69 
35.00 
34.34 
33.68 
33.03 
32.36 
31.68 
31.00 
30.32 
29.64 
28.96 
28.28 
27.61 
26.97 
26.34 
25. 71 
25. 09 
24.46 
23.82 
23.17 
22.50 
21.81 
21.11 
20.39 
19.68 
18.97 
18.28 
17.58 
16.89 
16.21 
15.55 
14.92 
14.34 
13.82 
13.31 
12.81 
12.30 
11.79 



42.972 
42.246 
41.521 
40. 795 
40.065 
39. 333 
38. 600 
37. 866 
37. 131 
36. 396 
35.659 
34. 922 
34. 184 
33. 447 
32. 710 
31. 974 
31.238 
30.504 
29.771 
29.040 
28.311 
27. 584 
26.862 
26.141 
25.425 
24. 713 
24. 004 
23.302 
22. 604 
21. 912 
21.227 
20.548 
19. 877 
19.213 
18. 557 
17.910 
17. 273 
16.644 
16.026 
15.418 
14. 821 
14. 236 
13. 662 
13. 101 
12.551 
12.015 



38. 918 
38. 190 
37. 461 
36. 730 
35.999 
35.266 
34.534 
33. 800 
33. 066 
32. 333 
31. 600 
30. 867 
30. 135 
29. 405 
28. 677 
27. 950 
27.225 
26. 502 
25. 784 
25. 067 
24.355 
23.648 
22. 944 
22.246 
21.552 
20. 866 
20.185 
19.511 
18.845 
18.186 
17. 536 
16. 894 
16. 262 
15.639 
15.026 
14.424 
13.833 
13. 254 
12.686 
12. 131 
11.588 



-S. Doc. 745, 61-3- 



98 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table VI. — Showing expectation of life at all ages under various tables of 

mortality — Continued. 



66 years.. 

67 years . . 

68 years.. 

69 years.. 

70 years. . 

71 years.. 

72 years . . 

73 years.. 

74 years. . 

75 years.. 

76 years . . 

77 years . . 

78 years.. 

79 years . . 

80 years.. 

81 years . . 

82 years . . 

83 years. . 

84 years . . 

85 years . . 

86 years. . 

87 years . . 

88 years . . 

89 years . . 

90 years - . 

91 years . . 

92 years . . 

93 years. . 

94 years . . 

95 years . . 

96 years . . 

97 years . . 

98 years . . 

99 years . . 

100 years . 

101 years . 

102 years . 

103 years. 

104 years . 

105 years . 

106 years . 

107 years. 



American 
experience 

table of 
mortality. 



10.54 
10.00 
9.47 
8.97 
8.48 
8.00 
7.55 
7.11 
6.68 
6.27 
5.88 
5.49 
5.11 
4.74 
4.39 
4.05 
3.71 
3.39 
3.08 
2.77 
2.47 
2.18 
1.91 
1.66 
1.42 
1.19 
.98 
.80 
.64 
.50 



Actuaries 
or com- 
bined. 



10.46 
9.96 
9.47 
9.00 
8.54 
8.10 
7.67 
7.26 
6.86 
6.48 
6.11 
5.76 
5.42 
5.09 
4.78 
4.48 
4.18 
3.90 
3.63 
3.36 
3.10 
2.84 
2.59 
2.35 
2.11 
1.89 
1.67 
1.47 
1.28 
1.12 
.99 
.89 
.75 
.50 



Norttiamp- 
ton. 



10.42 
9.96 
9.50 
9.05 
8.60 
8.17 
7 74 
7.33 
6.92 
6.54 
6.18 
5.83 
5.48 
5.11 
4.75 
4.41 
4.09 
3.80 
3.58 
3.37 
3.19 
3.01 
2.86 
2.66 
2.41 
2.09 
1.75 
1.37 
1.05 
.75 
.50 



Farr's En- 
glish table 
No. 3. 



10.32 
9.83 
9.36 
8.90 
8.45 
8.03 
7.62 
7.22 
6.85 
6.49 
6.15 
5,82 
5.51 
5.21 
4.93 
4.66 
4.41 
4.17 
3.95 
3.73 
3.53 
3.34 
3.16 
3.00 
2.84 
2.69 
2.55 
2.41 
2.29 
2.17 
2.06 
1.95 
1.85 
1.76 
1.68 
1.65 
1.62 
1.50 
1.50 
1.25 
1.00 
.50 



Carlisle's. 



11.27 
10.75 
10.23 
9.70 
9.18 
8.65 
8.16 
7.72 
7.33 
7.01 
6.69 
6.40 
6.12 
5.80 
5.51 
5.21 
4.93 
4.65 
4.39 
4.12 
3.90 
3.71 
3.59 
3.47 
3.28 
3.26 
3.37 
3.48 
3.53 
3.53 
3.46 
3.28 
3.07 
2.77 
2.28 
1.79 
1.30 
.83 
.50 



British 

offices' 

annuitants 

(select). 



11.492 
10. 983 
10. 487 
10. 005 
9.537 
9.084 
8.646 
8.222 
7.812 
7.417 
7.037 
6.671 
6.320 
5.983 
5.660 
5.351 
5.056 
4.774 
4.606 
4.250 
4.006 
3.775 
3.555 
3.346 
3.148 
2.961 
2.783 
2.616 
2.457 
2.307 
2.165 
2.030 
1.901 
1.777 
1.488 
1.266 
1.080 
.874 
.500 



British 

offices' 

annuitants 

(ultimate). 



11.059 
10. 543 
10.041 
9.552 
9.078 
8.618 
8.173 
7.743 
7.327 
6.926 
6.541 
6.170 
5.815 
5.474 
5.148 
4.836 
4.539 
4.257 
3.988 
3.732 
3.490 
3.261 
3.045 
2.841 
2.649 
2.468 
2.299 
2.140 
1.991 
1.852 
1.722 
1.600 
1.487 
1.380 
1.277 
1.172 
1.050 
.870 
.500 



SEASONS FOK USING AMERICAN EXPERIENCE TABLE OF MORTALITY IN FIRST STEP 
OF DETERMINING COST OF ANNUITIES FOR BACK SERVICES. 

The next need for a mortality table is in computing the cost of 
annuities for services rendered prior to the adoption of the plan. The 
American Experience Table of Mortality, an insurance table, was used 
in the first step of the calculation. It was employed in determining 
the annuities that would be due the employees of various ages on 
reaching the retirement age. This was accomplished by multiplying 
the " immediate annuities " by the probability of living under the 
American Experience Table of Mortality from the various ages at the 
present time to the age of retirement. This table was selected be- 
cause it has been found that in the ages up to about 70 the gradua- 
tion is more nearly in harmony with the experience of the American 
insurance companies, and because under it the probability of living 
between the various ages and the ages of retirement is considerably 
higher than under any of the other recognized insurance tables. The 



EETIREMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 99 

reason for selecting a table which shows a low mortality from the 
various ages to the age of retirement is to avoid the mistake of 
estimating the cost of these annuities at less than the amount required, 
as would result if fewer deaths occurred than had been calculated. 
Table VII shows that the probability of living up to the age of 70 
is greater under the American table than under any of the others — 
in other words, that the mortality is lower. 



Table VII. — Shoicing the number out of 100 living at various ages that ^oill 
survive to age 70 according to different tables of mortality. 



Age. 



Ameri- 
can expe- 
rience. 



North- 
ampton. 



Carlisle. 



Farr's 
English 
No. 3. 



Com- 
bined, 
or actu- 
aries'. 



20 offices 



20 offices 
Hn.(5). 



British 
offices 
annuity 
(ulti- 
mate). 



20 years 
25 years 
30 years 
35 years 
40 years 
45 years 
50 years 
55 years 
60 years 
65 years 



41.63 
43.32 
45.14 
47.14 
49.38 
52.00 
55.25 
59.74 
66.59 
78.17 



24.01 
25.88 
28.10 
30.72 
33.89 
37.93 
43.12 
50.33 
60. 45 
75.49 



39.42 
40.84 
42. 55 
44.78 
47.31 
50.79 
54.60 
58.95 
65.91 
79.56 



34.28 
35.80 
37.55 
39.59 
42.04 
45.08 
49.04 
54.58 
62.72 
75.86 



38.42 
39.89 
41.53 
43.40 
45. 56 
48.14 
51. .55 
56.46 
64.02 
76.65 



39.62 
40.97 
42.42 
44.18 
46.33 
48. 93 
52.42 
57.32 
64.76 
77.33 



36.77 
38.67 
40.64 
42. 58 
44.92 
47.63 
51.25 
56.39 
64.03 
76.89 



42.31 
43.88 
45.66 
47.78 
50. 43 
53. 93 
58.85 
66.28 
78.39 



KEASONS FOB USING COMBINED OB ACTUAEIES' TABLE OF MORTALITY IN LAST STEP 
OF DETERMINING COST OF ANNUITIES FOB BACK SERVICES. 

The second step in calculating the cost of adopting Part II of the 
plan is to determine the amount of annuities that will actually be 
paid those who rendered service prior to the adoption of the plan 
from the time they reach the age of retirement until the last of them 
is dead. This will depend upon the rate of mortality among the 
survivors. From about the age of 75 the American table shows a 
severe rate of mortality, and it was thought best, therefore, in dis- 
counting the annuities from the retirement age down to the death 
of the last survivor by the probability of living each year, to make 
use of a table which shows generally a greater expectation of life 
after the retirement ages than does the American table. The Com- 
bined or Actuaries' Table, therefore, which shows at the age of 80 
about six months greater expectation of life than does the American 
table (4.78 years as against 4.89) and at older ages still greater dif- 
ferences of expectation, was selected for this purpose. It shows the 
death of the last person at the age of 99 as against the age of 95 in 
the American table, and probably more nearly represents the true 
span of life than does the American table. For a comparison of the 
expectation of life imder the various mortality tables, see Table VI. 

The eflf'ort has been throughout to use such tables as would give 
the highest rate for annuities, so that the estimate of cost under 
Part II of the plan would be a maximum. 



100 RETIREMENT OF SUPERANNUATED OIVIL-SERVICE EMPLOYEES. 

INTEREST. 

The computation of annuities depends upon tables of mortality 
and tables of compound interest. Having considered briefly the 
history and uses of mortality tables with special reference to those 
employed in the construction of the proposed savings and annuity 
plan, it becomes necessary to give some attention to the tables of 
compound interest used in the computation of the annuities granted 
under the plan. 

SIMPLE INTEREST AND COMPOUND INTEREST, 

Interest is defined by Carroll as "the charge made by the lender 
to the borrower for the use or opportunity to use capital, money, or 
credit, and is stated in terms of money." ^ 

Two kinds of interest are taken account of in financial transac- 
tions — simple and compound. Simple interest, which is interest 
charged on the principal only, has no part in the calculation of 
annuities, or in any other form of life assurance contracts. Com- 
pound interest, on the other hand, which is interest charged on the 
accrued interest as well as on the original principal, is the basis of 
all life assurance computations, including the calculation of annui- 
ties. All life assurance institutions invest their funds at compound 
interest ; that is, they reinvest the interest received from their invest- 
ments so as to receive more interest, gaining thus not merely profit 
on the original investment, but profit on the profit as well. 

CUMULATIVE POWER OF COMPOUND INTEREST. 

To the mind not accustomed to the consideration of the cumulative 
power of compound interest the results that can be obtained by steady 
and systematic saving, when the accumulations are improved by 
the operation of compound interest, appear little short of marvelous. 
The young employee, entering the service at 20 years of age, has 
only to put aside out of a salary of $1,200 a year the small sum of 
$4.27 each month to accumulate, with the help of compound interest 
at 3^ per cent, by the time he is 70 years of age the sum of $6,835.50, 
which is sufficient to retire him on an annuity of $900 a year for 
the rest of his life. Of this sum of $6,835.50, which he will have to 
his credit at the age of 70, only $2,560.20 will actually have been 
contributed by himself. All the remainder, which is no less than 
$4,275.30, or nearly two-thirds of the whole sum, will be interest. 
Illustrations of the working of this principle through different 
periods of service are given in the following tables. Table VIII 

» See Principles and practice of finance, by Edward Carroll, jr., p. 35. 



RETTEEMENT OP SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 



101 



shows the percentage of annuity contributed by the employee and 
the percentage gained through the increment of interest : 

Table VIII. — Showing percentage of annuity contriMted hy employee and 
percentage gained through increment of interest. 





Entrance age. 


Years 
service. 






Cost of annuity. 


Retirement age. 


Monthly 
deduc- 
tion from 
salary 
of 8100. 


Amount 
of annu- 
ity. 


Total. 


Employee's 
savings. 


Interest on em- 
ployee's savings. 




Amount. 


Per 
cent. 


Amount. 


Per 
cent. 


70}years 

7o years 

70 years 

70 years 

70 years 

70 years 

70 years 

70 years 

70 years...-. 

70 years 

70 years 


20 years 

25 years 

30 years 

35 years 

40 years 

45 years 

50 years 

55 years 

60 years 

65 years 

69 years 


50 
45 
40 
35 
30 
25 
20 
15 
10 
5 
1 


$4. 267 
4.756 
5. 289 
5.869 
6.497 
7.176 
7.907 
8.691 
9. 530 
10. 425 
11. 178 


$900. 00 
810. 00 
720. 00 
630. 00 
540. 00 
450. 00 
360. 00 
270. 00 
180. 00 
90.00 
18.00 


$6,835.50 
6, 151. 95 
5, 468. 40 
4,784.85 
4, 101. 30 
3,417.75 
2, 734. 20 
2,050.65 
1,367.10 
683. 55 
136. 71 


$2,560.20 
2,568.24 
2, 538. 72 
2, 464. 98 
2,338.92 
2, 152. 80 
1,897.68 
1,564.38 
1, 143. 60 
625. 50 
134. 14 


37.45 
41.75 
46.42 
51.52 
57.03 
62.99 
69.41 
76.29 
83.65 
91.61 
98.12 


$4,275.30 

3,583.71 

2,929.68 

2,319.87 

1,762.38 

1,264.95 

836. 52 

486. 27 

223. 50 

58.05 

2.57 


62.55 
58.25 
53.58 
48.48 
42.97 
37.01 
30.59 
23.71 
16.35 
8.49 
1.88 



Table IX shows the amount returned to the employee in cash, 
after various periods of service, for each dollar deposited. 



Table IX, — Showing amount returned to the employee in cash, after various 
periods of service, for each dollar deposited. 



Retirement age. 



70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 
70 years 



Entrance age. 



20 years 
25 years 
30 years 
35 years 
40 years 
45 years 
50 years 
55 years 
60 years 
65 years 
69 years 



Years 
of serv- 
ice. 



Monthly 
deposit 
from a 

salary of 



$4. 267 
4. 756 
5. 289 
5.869 
6.497 
7.176 
7.907 
8.691 
9.530 
10. 425 
11.178 



Amount 
of an- 
nuity. 



$900. 00 
810. 00 
720. 00 
630. 00 
540. 00 
450. 00 
360. 00 
270. 00 
180. 00 
90.00 
18.00 



Amount 
deposited 

by em- 
ployee dur- 
ing entire 
period of 
service. 



$2,560.20 
2,568.24 
2,538.72 
2,464.98 
2,338.92 
2,152.80 
1,897.68 
1,564.38 
1,143.60 
625. 50 
134. 14 



Amount of 
cash re- 
turned on 
retirement 
in lieu of 
an annuity. 



$6,835.50 
6,151.95 
5,468.40 
4,784.85 
4,101.30 
3,417.75 
2,734.20 
2,050.65 
1,367.10 
683. 55 
136. 71 



Amount 
of cash 
returned 
for each 
dollar 
deposited. 



$2.67 
2.40 
2.15 
1.94 
1.75 
1.59 
1.44 
1.31 
1.20 
1.09 
1.02 



The rapidity with which a fund increases at compound interest 
after the lapse of a few years is graphically illustrated in the accom- 
panying chart by the curves representing the amount resulting from 
a deposit of $1 a year compounded at various rates of interest from 
1 to 50 years, and Table X, which follows, shows the same thing in 
numbers. It will be noted that during the first years of accumula- 
tion the amount of interest is insignificant, and the curves represent- 
ing it are slight, but that after about 20 years' accumulation the 
amount of interest increases very rapidly, approaching and passing 



102 BETIREMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

Chart showing the amount of a deposit of$l per annum from one to fifty years at various 

rates of interest. 



*220 
210 
200 
190 

mo 

170 

160 

ISO 

liO 

130 

120 

110 

100 

90 

80 

70 

60 

50 

30 
20 
lO 

o 


,5 10 25 SO 25 30 as ieO 4t5 SO \ 






















^219.81 

(.158.77 

a3558 
■.116.18 

(.5000 




















1 




















/ 




















/ 




















/ 1 


















^, 




















^j 




















/■ 


1 


















/^ 


1 1 


















// 


J J 
















/ 


1 


\ 
















/ 


1 i 


// 
















// 


K 














1 


/ 


/) 


y 














// 


// 


V 
















// 


// 


f 














/; 


V/y 


/ 
















/A 


V 


















^ 






^ 


^^ 










¥^\ 




rjii^''' 


^r^^ 










A 


















^ 


^ 


















^ 



















RETIKEMBNT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 103 



the amount of the principal itself. In other words, the interest 
accumulation on shorter periods is vastly less than on the longer 
periods of service. To illustrate : The interest on $1 per annum com- 
pounded for 40 years, at 4 per cent, amounts to $58.83, while for 50 
years, an accumulation period of only 10 years more, or but one-fifth 
of the whole period, it amounts to $108.77, or nearly twice the inter- 
est of the shorter period. 



Table X. 



-Showing the amount of a deposit of $1 per annum from 1 to 50 years 
at various rates of interest. 



Year. 



AmouDt of a deposit of SI per annum with interest at- 



2 per cent. 


2i per cent. 


3 per cent. 


3J per cent. 


4 per cent. 


Sj.02no 


$1.02,50 


$1.0300 


$1.0350 


$1.0400 


2. 0604 


2. 0756 


2. 0909 


2. 1062 


2. 1216 


3. 1216 


3. 1525 


3. 1836 


3.2149 


3. 2465 


4. 2040 


4. 2563 


4. 3091 


4. 3625 


4. 4163 


5. 3081 


6. 3877 


5. 4684 


5. 5502 


5. 6330 


6. 4343 


6. 5474 


6. 6625 


6. 7794 


6. 8983 


7. 5830 


7. 7361 


7.8923 


8. 0517 


8. 2142 


8. 7546 


8. 9545 


9. 1591 


9. 3685 


9. 5828 


9. 9497 


10. 2034 


10. 4639 


10. 7314 


11.0061 


li.UVS7 


11. 4835 


11. 8078 


12. 1420 


12. 4864 


12.4121 


12. 7956 


13. 1920 


13. 6020 


14. 0258 


13.6803 


14. 1404 


14. 6178 


15. 1130 


15. 6268 


14. 9739 


15. 5190 


16. 0863 


16. 6770 


17. 2919 


16. 2934 


16. 9319 


17. 5989 


18. 2957 


19. 0236 


17. 6393 


18. 3802 


19. 1569 


19. 9710 


20. 8245 


19.0121 


19. 8647 


20. 7616 


21. 7050 


22. 6975 


20. 4123 


21. 3863 


22. 4144 


23. 4997 


24. 6454 


21. 8406 


22. 9460 


24.1169 


25. 3572 


26. 6712 


23. 2974 


24. 5447 


25. 8704 


27. 2797 


28. 7781 


24. 7833 


26. 1833 


27. 6765 


29. 2695 


30. 9692 


26. 2990 


27. 8629 


29. 5368 


31. 3289 


33. 2480 


27. 8450 


29. 5844 


31. 4529 


33. 4604 


35. 6179 


29. 4219 


31. 3490 


33. 4265 


35. 6665 


38. 0826 


31.0303 


33. 1578 


35. 4593 


37. 9499 


40. 6459 


32. 6709 


35. 0117 


37. 5550 


40. 3131 


43.3117 


34. 3443 


36. 9120 


39. 7096 


42. 7591 


46. 0842 


36.0512 


38. 8598 


41. 9309 


45. 2906 


48. 9676 


37. 7922 


40. 8563 


44. 2189 


47. 9108 


51. 9663 


39. 5681 


42. 9027 


46. 5754 


50. 6227 


55. 0849 


41. 3794 


45. 0003 


49. 0027 


53. 4295 


58. 3283 


43. 2270 


47. 1503 


51. 5028 


56. 3345 


61. 7015 


45. 1116 


49. 3540 


54. 0778 


59. 3412 


65. 2095 


47. 0338 


51. 6129 


56. 7302 


62. 4532 


68. 8579 


48. 9945 


53. 9282 


59. 4621 


65. 6740 


72. 6522 


50. 9944 


56. 3014 


62. 2759 


69. 0076 


76. 5983 


53. 0343 


58. 7339 


65. 1742 


72. 4579 


80. 7022 


55.1149 


61. 2273 


68. 1594 


76.0289 


84. 9703 


57. 2372 


63. 7830 


71. 2342 


79. 7249 


89. 4091 


59. 4020 


66. 4026 


74. 4013 


83. 5503 


94. 0255 


61.6100 


69. 0876 


77. 6633 


87. 5095 


98. 8265 


63. 8622 


71. 8398 


81. 0232 


91. 6074 


103. 8196 


66. 1595 


74. 6608 


84. 4839 


95. 8486 


109. 0124 


68. 5027 


77. 5523 


88. 0484 


100. 2383 


114. 4129 


70. 8927 


80. 5161 


91. 7199 


104. 7817 


120. 0294 


73. 3306 


83. 5540 


95. 5015 


109. 4840 


125. 8706 


75. 8172 


86. 6679 


99. 3965 


114. 3510 


131. 9454 


78. 3535 


89. 8596 


103. 4084 


119. 3883 


138. 2632 


80. 9406 


93. 1311 


107. 5406 


124. 6018 


144. 8337 


83. 5794 


96. 4843 


111. 7969 


129. 9979 


151. 6671 


86. 2710 


99. 9215 


116. 1808 


135. 5828 


158. 7738 



1 year... 

2 years.. 

3 years.. 

4 years. . 

5 years.. 

6 years.. 

7 years.. 

8 years.. 

9 years.. 

10 years. 

11 years. 

12 years. 

13 years. 

14 years. 

15 years. 

16 years. 

17 years. 

18 years. 

19 years. 

20 years. 

21 years. 

22 years. 

23 years. 

24 years. 

25 years. 

26 years. 

27 years. 

28 years. 

29 years. 

30 years. 

31 years. 

32 years. 

33 years. 

34 years. 

35 years. 

36 years. 

37 years., 

38 years., 

39 years., 

40 years., 

41 years. 

42 years. 

43 years., 

44 years.. 

45 years. , 

46 years. . 

47 years.. 

48 years.. 

49 years. . 

50 years. . 



KATE OF INTEREST. 



The cumulative power of compound interest being so great, the 
rate at which the interest is compounded is important, since even 
slight variations in the rate cause considerable differences in results. 
(See chart, p. 102.) 



104 RETIREMENT OP SUPERANNUATED CIVIL- SERVICE EMPLOYEES. 

The rate of interest that money will earn is important in connec- 
tion with this plan in two respects. It has to be considered with 
reference to the payment of interest on the accumulated savings of 
the employees, and also in connection with the computation of the 
annuity that these savings will buy. The bill provides, in the first 
sentence of the first section, that interest at 3^ per cent compounded 
annually shall be added to the savings of the employees. It likewise 
provides in the last sentence of the same section that the deductions 
from the employees' salaries shall be based on the proper mortality 
table, with interest at 3^ per cent compounded annually. In other 
words, no specific amount or uniform percentage of salary is stated 
as the proper rate of deduction from salaries, but a sum which, on 
two assumptions, will at the retirement age yield the amount neces- 
sary to buy the desired annuity. The two assumptions are the rate 
of mortality and the rate of interest. The latter is fixed by the 
proposed law at 3^ per cent, but the right to change the mortality 
basis is left to the Secretary of the Treasury, so that, in case the 
experience among the Government annuitants should make it de- 
sirable to use a table showing a higher or a lower* rate of mortality, 
the change can be made. The table recommended for the present is 
the British Offices' Select Annuitants' Table. For both purposes, the 
accumulation of interest on the employees' savings and the computa- 
tion of annuities to be bought with them, the rate of interest pro- 
posed is 3^ per cent. 

BATE OF 3i PEE CENT PROPOSED IN BILL. 

The rate of 3^ per cent was adopted in drafting the proposed bill 
as the desirable rate to be allowed the employees on their money 
held by the Government, since, in the opinion of some who have con- 
sidered the subject, it is the maximum rate that can be safely guaran- 
teed by the Government ; while, on the other hand, a lower rate than 
3^ per cent would require the deductions from salaries to be unduly 
high in order to create the fund from which to pay the annuities 
provided in the bill. It was also thought to be about as low a rat€ 
as the Government could consistently ask its employees to accept on 
enforced savings, since that rate or a higher one is offered them by 
the majority of outside savings institutions. 

OBJECTION TO LOW INTEREST RATE. 

The most practical objection to too low a rate of interest is the 
fact that it necessitates too high a deduction from the employee's 
salary, a factor in the problem that is not very flexible. The higher 
interest rate would undoubtedly create a better feeling among the 



EETIEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 105 

employees also, some of the more thrifty of whom object to a com- 
pulsory savings plan solely on the ground that they can find more 
remunerative investments for their savings than the Government 
would guarantee under this bill. 

The improvident, too, who never have any money to invest would 
be less likely to complain about a compulsory savings plan charac- 
terized by low rather than high deductions from salary. In the 
opinion of the author, therefore, 3^ per cent is altogether too low 
an interest rate on enforced savings, and the Government should 
be willing to guarantee at least 4 per cent. It is very improbable 
that a guarantee of that rate would put a burden on the Govern- 
ment, for it would undoubtedly often be able to earn more than 4 
per cent, which would offset the times when it would earn less. As 
explained on page 77 also, the safest and wisest way for the Gov- 
ernment to lend its aid to the retirement project, far better than by ' 
any direct contribution, is through grant of a liberal rate of interest, 
since encouragement of that kind from the Government would offer 
no temptation to the introduction of abuses which invariably creep 
in under a system supported wholly or in part by contributions from 
the Government. The payment of a liberal rate of interest would 
operate chiefly as a reward of merit for the benefit of the long- 
service employee, for it is not until after a long period of years that 
the difference of a point or two in the rate of compound interest 
begins to show to any considerable extent, so that, while it would 
not make much difference to the employee who left the service after 
10 years whether the interest rate allowed on his savings was 3^ 
or 4 per cent, it would make a very great difference to the employee 
who had been in the service 40 or 50 years. Reference to the interest 
chart on page 102 will show how much more interest at 4 and 5 per 
cent will amount to on a long period of years than on a short term. 

"ADVANTAGE OF LOW INTEREST RATE. 

On the other hand, the assumption of a low interest rate is not 
without its advantages. The lower the rate of interest the less 
probable, of course, that the Government would ever fail to realize 
the rate guaranteed. The bill provides that whatever is carried 
above the guaranteed interest rate should be returned to the em- 
ployees, and it is proposed (see p. 110) that this surplus earning 
should be divided among the annuitants in order to make the an- 
nuity settlement as attractive as possible and to discourage employees 
from taking their money in cash. Naturally, the lower the rate of 
interest guaranteed, the more there will be to divide among annuitants 
and the greater the advantage given them over those who take a 
cash settlement on retirement. 



106 RETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

The effect of various rates of interest on the value of an annuity of 
$1, based on the annuity experience of the British offices, is shown in 
Table XL 

Table XI. — Shotving the value of an annuity of $1, at variows ages, 'based on the 
British offices' select annuitatnts' experience, with different rates of interest. 
Annuity payable quarterly. 



20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

■ 30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years 

47 years 

48 years 

49 years 

50 years 

51 years 

52 years 

53 years 

54 years 

55 years 

56 years 

57 years 

58 years 

59 years 



2Jper 
cent. 



3 per 
cent. 



22. 733 
22. 548 
22. 359 
22. 164 
21.965 
21.758 
21. 547 
21.330 
21. 107 
20. 879 
20. 645 
20.404 
20. 158 
19. 906 
19. 648 
19. 384 
19. 115 
18. 840 
18.558 
18. 271 
17. 979 

17. 680 
17. 377 
17.069 
16. 755 
16. 436 
16.113 
15.785 
15. 453 
15.117 
14. 778 
14. 435 
14.089 
13. 740 
13. 389 
13.035 

12. 681 
12. 326 
11. 969 
11.613 



3Jper 
cent. 



20. 874 
20. 724 
20.578 
20. 410 
20. 246 
20. 076 
19. 900 
19. 720 
19. 534 
19.343 
19. 147 
18. 944 
18. 735 
18. 521 
18. 301 
18. 076 
17. 844 
17. 607 
17.364 
17.115 
16. 860 
16. 601 
16. 335 
16. 064 
15. 788 
15.506 
15. 220 
14. 928 
14. 631 
14.3.31 
14. 026 
13. 717 
13. 405 
13. 089 
12. 770 
12. 448 
12. 124 
11. 799 
11. 471 
11. 143 



4 per 

cent. 



19. 259 
19.137 
19.010 
18. 879 
18. 743 
18. 602 
18. 456 
18. 305 
18. 150 
17. 989 
17. 823 
17.650 
17. 474 
17. 291 
17. 103 
16.909 
16.710 
16. 505 
16. 294 
16.078 
15. 855 
15. 627 
15. 394 
15.156 
14.911 
14. 661 
14. 406 
14. 146 
13. 881 
13. 611 
13.337 
13. 058 
12. 775 
12. 488 
12. 198 
11.904 
11.608 
11.310 
11. 008 
10. 706 



60 years . 

61 years. 

62 years . 

63 years. 

64 years . 

65 years. 

66 years . 

67 years . 

68 years. 

69 years . 

70 years . 

71 years. 

72 years . 

73 years . 

74 years . 

75 years . 

76 years . 

77 years. 

78 years . 

79 years. 

80 years . 

81 years . 

82 years . 

83 years. 

84 years . 

85 years. 

86 years . 
/,7 years . 

88 years . 

89 years . 

90 years . 

91 years. 

92 years . 

93 years . 

94 years . 

95 years . 

96 years . 

97 years . 

98 years . 

99 years . 



24 per 
cent. 



3 per 


3iper 


cent. 


cent. 


11.257 


10.815 


10.901 


10. 485 


10.547 


10.157 


10.194 


9.828 


9.844 


9.502 


9.496 


9.177 


9.152 


8.854 


8.811 


8.534 


8.474 


8.218 


8.143 


7.904 


7.816 


7.595 


7.494 


7.291 


7.179 


6.992 


6.870 


6.698 


6. 568 


6.410 


6.273 


6.128 


5.985 


5.852 


5.705 


5.584 


5.432 


5.322 


5.168 


5.068 


4.912 


4. 821 


4.664 


4.582 


4.425 


4.350 


4.194 


4.127 


3.972 


3.912 


3.759 


3.704 


3.553 


3.504 


3.357 


3.313 


3.168 


3.129 


2.988 


2.953 


2.816 


2.784 


2.652 


2.623 


2.495 


2.470 


2.346 


2.323 


2.204 


2.184 


2.068 


2.051 


1.940 


1.924 


1.817 


1.804 


1.700 


1.688 


1.586 


1.575 



4 per 
cent. 



10.402 
10. 096 
9.791 
9.486 
9.180 
8.877 
8.574 
8.273 
7.974 
7.679 
7.386 
7.098 
6.813 
6.533 
6.258 
5.989 
5.725 
5.467 
5.216 
4.971 
4.733 
4.502 
4.278 
4.062 
3.852 
3.651 
3.456 
3.269 
3:090 
2.918 
2.753 
2.596 
2.445 
2.301 
2.164 
2.034 
1.909 
1.790 
1.675 
1.656 



The probable future course of the rate of interest is discussed in 
Chapter V, page 204. 



ANNUITIES. 



The plan of retirement under discussion proposes that the civil 
employee shall be able to withdraw his savings, on retiring from the 
service, in the form of an annuity or a cash sum. 

ANNUITY ALWAYS 1^^ PER CENT OF AGGREGATE SALARY. 



Starting with the amount of the annuity as a fixed quantity, as 
explained at the beginning of this chapter — ^that is, 1^ per cent of 
salary (a known sum) for every year of service from the age of en- 
trance to the age of retirement (a definite number of years) — it is 
easy to compute what deduction from salary will be enough, with 



flETIREMENT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. 107 

interest at 3^ per cent, compounded annually, to create a fund suf- 
ficient to buy that annuity. The amount of the annuity being thus 
fixed by the amount of salary, the amount of the deduction from 
salary remains unchanged as long as the salary remains unchanged. 
Only when the salary is increased or decreased is the deduction from 
salary changed. (See Table XXIII.) The point is that. in the pro- 
posed plan of retirement the annuity is the fixed quantity (fixed 
according to salary and length of service), and the deduction from 
salary is the factor to be determined. In all flat-rate assessment 
plans the reverse holds true, a fixed percentage of salary being 
agreed upon as the proper deduction from salary for employees of 
all salaries and all entrance ages. The logical problem, then, should 
be to compute the annuities that the fund thus created will buy, but 
seldom do these plans follow logic in this respect. The Canadian 
plan, with its savings-bank idea based on a flat-rate deduction of 5 
per cent from salaries, is the only known instance of a uniform as- 
sessment plan in which the several annuities are restricted to the 
sums which the individual contributions will purchase. To the extent 
to which it is logical the Canadian plan is satisfactory, its failure 
arising not from its adherence to the savings-bank idea but from its 
adoption of the idea of a uniform percentage of salary as the proper 
deduction from salary for all ages of entrance. With most flat-rate 
assessment plans the amount of the annuity is determined arbitrarily 
in advance, as well as the percentage of salary required from the 
employee. There being no direct relation between the two factors, 
the usual result is that the fund created by the deductions from 
salary is insufficient to provide the benefits that are agreed upon or 
that are ultimately granted, and the Government is accordingly 
called on to make up the deficit. The practical result in the Canadian 
instance is the same — a deficiency — with this difference, that the 
annuitants rather than the State are made to feel the hardship of 
an arrangement which retires the aged on inadequate allowances. 
In such a case the State will, of course, ultimately be made to carry 
the burden, if the friends of those thus inadequately retired are 
sufficiently numerous and influential. 

ANNUITY OF 1 OR 2 PER CENT OF AGGREGATE SAIW^RY POSSIBI^ BUT NOT 

ADVISABLE. 

Some other per cent than 1^ per cent of the salary for each year of 
service might have been used as a basis for the annuities. Half pay 
after 50 years of service would be 1 per cent for each year of service, 
but as the majority of people serve the Government much less than 60 
years annuities computed on the basis of 1 per cent would be inade- 
quate, and the evils oi inadequate annuities have just been pointed 



108 EETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 



out in the case of Canada. On the other hand, annuities equal to full 
pay after 60 years, that is, 2 per cent for each year of service, would 
only be possible through excessive deductions from salary. The dif- 
ference in the practicability of these several bases of computation — 
1, 1^, and 2 per cent for each year of service — is shown in Table XII. 

Table XII. — Showing ditferences in practicability of several bases of computa- 
tion for annuities, 1, 11, and 2 per cent of annual salary for each year of 
service. 



Age. 



Deductions required from a monthly 
salary of $ 1 00 to provide an annuity 
on retirement at age 70 equal to — 



1 per cent 
of annual 
salary for 
each year 
of service. 



IJ per cent 
of annual 
salary for 
each "year 
of service. 



2 per cent 
of annual 
salary for 
each year 
of service. 



20 years 
25 years 
30 years 
35 years 
40 years 
45 years 
50 years 
55 years 
60 years 
65 years 
69 years 



2.844 
3.171 
3.526 
3.913 
4.331 
4.784 
5.271 
5.794 
6.353 
6. 950 
7.452 



4.267 
4.756 
5.289 
5. 869 
6.497 
7.176 
7.907 
8.691 
9. 530 
10. 425 
11. 178 



5.689 
6.341 
7.052 
7.825 
8.663 
9.568 
10. 543 
11.588 
12. 707 
13. 900 
14. 904 



TWO FORMS or ANNUITIES. 

Provision is made in the bill for three optional settlements on 
retirement from the service. These three provisions are set forth in 
section 6 of the bill, which reads as follows : 

That upon retiring at the age of retirement or thereafter the employee may 
withdraw his savings, with the increment of interest as herein provided, under 
one of the following options ; * * * 

Option I. In an annuity payable quarterly throughout life. 

Option II. In an annuity payable quarterly throughout life, with the provi- 
sion that in case of the death of the annuitant before he has received in annui- 
ties the amount of his savings, plus the interest credited thereon, the balance 
shall be paid to his legal heirs. In determining at his death the amount due 
to his heirs no account shall be taken of the annuities paid to him by the 
United States under section 11 of this act. 

Option III. In one sum. 

Which is the best option for the employee depends entirely on his 
personal circumstances. The first option is the most desirable for an 
employee who has no one but himself to consider and is willing to 
sink his capital in order to secure the largest possible income while 
he lives to enjoy it. It ceases, however, with his death. If others are 
dependent on him and his health is poor on reaching the retirement 
age, he might more properly take Option II, which will give him a 
smaller annuity, but will assure to his heirs, in case he dies before the 
amount of his savings, plus interest, has been returned to him, the sum 



EETIKEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 109 

still to his credit. The third option is a necessary and logical alterna- 
tive in a savings-bank scheme. The amount of the annuity that may 
be received under the two options is shown in Table XIII. 

Table XIII. — Showing amount of annuity granted for a given sum of money 
under Option I and Option II of the bill. 

Option I. — Amount of deposit necessary at age stated to purchase a life an- 
nuity of $1 payable in quarterly installments, first payment three months 
after reaching given age: 

Age 60 $10,815 

Age 65 9.177 

Age 70 7.595 

Amount of yearly annuity payable quarterly that following deposit will provide 

under above : 

Deposit. Annuity. 

Age 60 $6,835.50 $632.03 

Age 65 6,835.50 744.85 

Age 70 6,835.50 900.00 

Option II. — Amount of deposit necessary at age stated to provide a life annuity 
of $1 payable in quarterly installments, first payment three months after 
reaching given age, with provision granting retui'u, in case of death, of balance 
of deposit not received in annuities: 

Age 60 $12,675 

Age 65 11.125 

Age 70 9.625 

Amount of yearly annuity payable quarterly that following deposit will pro- 
vide under above : 

Deposit. Annuity. 

Age 60 $6,835.50 $539.28 

Age 65 6,835.50 614.43 

Age 70 6,835.50 710.18 

ADVISABILITY OF CASH SETTLEMENT AS WELL AS ANNUITY SETTI^EMENT. 

The desirability of allowing the employee to withdraw his savings 
on retirement in the form of a cash sum instead of an annuity has 
been questioned by some persons. It is asserted that the super- 
annuated employee who retired from the service with a cash sum 
might be tempted to invest it unwisely and in a short time be in no 
better condition than if his savings had not been accumulated for 
him. It has been suggested, therefore, by some persons that the 
options on withdrawal from the service at the age of retirement 
should be limited to the annuity settlements. The objection to this is 
that there would be no age at which an employee leaving the service 
could withdraw his savings plus interest in a cash sum and it cer- 
tainly would not be desirable, in all cases, either for the employee 
or the Government, that the employee should take the money to his 
credit in the form of an annuity. If the employee retiring at age 70 
is forced to take an annuity, then why should not the employee re- 
tiring at age 69, at age 65, at age 60, at age 50, at age 40, and so 



110 EETTKEMENT OF SUPEEANNUATED OIVIL-SERVIC'E EMPLOYEES. 

on down be required to take an annuity instead of a cash sum on 
leaving the service? There would seem to be no age at which the 
cash settlement might logically be allowed in preference to the an- 
nuity settlement, and yet an annuity settlement would not be desir- 
able in the case of an employee who left the service after only two or 
three years with only enough money to his credit to buy an annuity 
of a few dollars. Where the employee has only a small amount to 
his credit it is much simpler to allow him to take his money in cash, 
and section 7 of the bill accordingly provides that whenever he leaves 
the service before reaching the age of retirement he shall withdraw 
his savings plus interest in that form unless the amount to his credit 
is at least $1,000, in which case he may, if he so desires, take an an- 
nuity such as his money will buy at his attained age. 

Since it is impossible to determine with justice to every individual 
at what age or after what period of service the employee should be 
restrained from taking his savings in the form of cash, the only prac- 
tical thing to do is to make the annuity settlements as attractive as 
possible, so that aged employees may be influenced, on retiring from 
the service, to take one of them in preference to the cash settlement. 
Toward that end it is provided that the surplus earnings above the 
guaranteed interest rate may be divided among annuitants who re- 
main in the service until the age of retirement. Those who withdraw 
the money to their credit in a lump sum will not be allowed to par- 
ticipate in the division of any surplus. If, in spite of the greater 
attractions of the annuity settlements, the employee insists on having 
his money in cash and then squanders it, the Government can cer- 
tainly not be held responsible for his folly. It would seem to have 
done its part when it has provided a way whereby he may be retired 
at a proper age on a competence. 

It will be some time, however, before this problem will be at all 
pressing, since the Government's payments, under Part II of the 
plan, on services rendered prior to its adoption will only be in the 
form of annuities. It will be many years before those retiring would 
have to their credit any considerable sum of their own saving, which, 
under the terms of the bill as it now stands, could be drawn out in 
cash, and in the interval, if it is found advisable, the bill might be 
modified in accordance with any pronounced gpneral sentiment or 
with any experience that had developed in regard to the wisdom of 
limiting the division of surplus earnings to annuitants or restricting 
settlements to annuity settlements. 

Apart from any theoretical consideration there is one very real 
practical objection to the idea of limiting the options on retirement 
to annuity settlements. An employee might be in very poor health 
on reaching the age of retirement, and, certain of living only a few 
years longer, might prefer to take his savings in the form of a cash 
sum and buy all the comfort possible during the short time left him, 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Ill 

rather than to take an annuity which would cease with his death or 
run on after his death for the benefit of some one else. 

It seems certain at least that any average human being woidd 
object, and be justified in objecting, if his employer, whether the 
same were the Government, a corporation, or an individual, should 
withhold part of his earnings and reserve the right to return them 
at some remote date in the form of an annuity only, regardless of 
the employee's circumstances at that time or his wishes in the matter. 
In the opinion of most people that would be carrying the element 
of compulsion farther than necessary. It is unfortunate that it 
should ever be necessary to force people to take any step for their 
own good, and, theoretically, there is only one thing to be said in 
favor of compelling a person, whether a Government employee or 
not, to save his money, and that is that, since he is a member of 
society, the possibility is recognized of his making a claim on society, 
and society is right in protecting itself by prescribing what his con- 
duct shall be. Undoubtedly^, the ideal plan of retirement would be 
no retirement plan at all, but a government willing to pay salaries 
large enough to support its employees in dignity and comfort and 
a body of employees so thrifty as voluntarily to lay aside a com- 
petence for the rainy days of old age. There would be no problem 
then of superannuation in the public service, but such a condition 
can not be expected before the millennium, and in the meantime 
the Government must deal with the situation, in justice to itself and 
the employees, in such a practical way as to get beneficial results, re- 
gardless of any theory that it is tyranny for a government to require 
an individual to include thrift among the virtues he must cultivate 
in order to be held law-abiding. The Government is commonly held 
to be justified in protecting itself against the possibility of dishonesty 
on the part of its employees by requiring those holding offices of trust 
to give bond for the faithful performance of duty, and it is difficult 
to see Avhy the Government is not equally justified in protecting itself 
against the evil consequences of improvidence on the part of its 
employees by requiring them to make such regular deposits of money 
as may guarantee their ability to retire when the interests of the 
Government so demand. A compulsory retirement law, such as that 
here proposed, is indeed much less paternalistic than a law requiring 
employees to give bond, because under this retirement system every 
contributor recovers his contributions with interest, whereas under 
the bonding system of the Government nine hundred and ninety-nine 
honest officials contribute to reimburse the Government against loss at 
the hands of one dishonest employee. At the same time there is 
surely a limit to the extent the Government is justified in interfering 
with the individual's liberty or assuming responsibility for his wel- 
fare, and that point would seem to be reached in a retirement plan 



112 RETIREMENT OF SUPERANNUATED OIViri-SERVICE EMPLOYEES. 

when the Government has arranged the employee's affairs so that it 
can without injustice dismiss him from the service, leaving him 
thereafter to his own devices. 

ANNUITY RATES USED IN PROPOSED PLAN. 



The next thing to consider is what price the Government should 
cliargi for these annuities. In determining what the rate should 
be for an annuity of $1, beginning at various ages, the first step is 
to select a mortality table that most accurately represents the par- 
ticular body of lives on which the annuities are to be granted. The 
table recommended, for reasons given on page 95, is the British 
Offices' Select Annuitants' Table. The next step is to decide upon a 
rate of interest which the funds received in payment for the annuity 
contracts may reasonably be expected to earn. The rate of interest 
proposed, for reasons given on page 104, is 3^ per cent. With these 
two fundamentals established. Table XIV has been prepared, which 
shows the present value of a life annuity of $1 for a male at age 
70, first payment in one year to be $7.2205. Briefly stated, the price 
of an annuity is the present worth of a series of payments to be made 
to a person for a stated period or until the happening of some event, 
such as death. 

Table XIV. — Shcnorng Jiow the value of an annuity is determined. 



Age. 



Niunlier 
living. 



Prohal .ility 
of living. 



Present 

value of SI 

(3i per cent) 



Present 

worth of each 

payment. 



70 years 

71 years 

72 years 

73 years 

74 years 

75 years 

76 years 

77 years 

78 years 

79 years 

80 years 

81 years 

82 years 

83 years 

84 years 

85 years 

86 years 

87 years 

88 years 

89 years 

90 years 

91 years 

92 years 

93 years 

94 years 

95 years 

96 years 

97 years 

98 years 

99 years 

100 years 

101 years 

102 years 

103 years 

Present value of a life annuity of $1 at age 70 (first pay- 
nent in one year) 



38,991 

37,573 

35,790 

33. 675 

3i;312 

2S, 820 

26, 305 

23,823 

21,392 

19, 031 

16,760 

14,598 

12,561 

10,668 

8,930 

7,359 

5, 961 

4,739 

3,691 

2,812 

2,091 

1,513 

1,064 

725 

477 

303 

184 

107 

59 

31 

15 

7 

3 

1 



. 96363263 
. 91790413 
. 86366084 
. 80305711 
.73914493 
. 67464287 
. 61098715 
. 54863943 
. 4880S699 
. 42984278 
. 37439409 
. 32215126 
. 27360160 
. 22902721 
. 18873586 
. 152S8143 
. 1215-1087 
. 09466287 
.07211921 
. 05362776 
. 038SS3S2 
. 0272SS35 
. 01859403 
. 01223359 
. 00777102 
. 00471904 
. 00274422 
. 00151288 
. 00079506 
. 00038470 
.000179.53 
. 0CX107694 
. 00002565 



$0. 96618357 
. 93351070 
. 90194270 
.87144223 
. 84197317 
. 81350064 
. 78599096 
.75941155 
. 73373097 
. 70S91SS1 
. 68494571 
. 66178330 
.63940415 
.61778179 
. 59689062 
. 57670591 
. 55720378 
.53836114 
. 52015569 
. 50256588 
. 4S557O90 
. 46915063 
. 45328563 
. 43795713 
. 42314699 
. 40883767 
. 39501224 
. 38165434 
. 36874816 
. 35627841 
. 34423035 
. 33258971 
. 32134271 



$0. 93104601 
. 856S7333 
. 77897259 
. 69981788 
. 62234020 
. 54882241 
. 48023038 
. 41664312 
. 35812454 
. 30472363 
. 25643963 
. 21319432 
. 17494200 
. 14148884 
. 11265466 
. 08816762 
. 06772303 
. 05096281 
. 03751322 
. 02695148 
. 01888085 
. 01280235 
. 00842841 
. 00535778 
. 00328828 
. 00192932 
. 00108400 
. 00057740 
. 00029318 
. 00013706 
. 00006180 
. 00002559 
. 00000824 



$7.22050596 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 113 
PEESENT VALUE OF AN ANNUITY OF $1 FOR A MALE, BEGINNING AT AGE 70. 

It will be observed that, according to the above table (Table XIV), 
the number living at the beginning of age 70 is 38,991. At the 
beginning of the second year there will be, according to the same 
table, only 37,673 living, and consequently as the first annuity pay- 
ment under our calculation is to be made at the beginning of the 
second year the payment will amount to only $37,573. If an adjust- 
ment were made at the beginning of the first year, the Government 
would have to pay such a sum as would with compound interest 
amount to $37,573 at the end of the year. Since each one of the 
annuitants has an equal claim upon this sum, it must be divided by 
38,991, the number living at the beginning of the first year. The 
share of each annuitant, 3^ per cent interest being assumed, is there- 
fore the present value of U^Pf of $1, or |^^|ff X0.96618357, or 
$0.93104601. The present value of all payments commuted in this 
manner constitutes the value of a life annuity at the age given. The 
present value of a life annuity of $1 for a male at age 70 (first pay- 
ment in one year) is therefore the sum of the present values of all 
commuted payments from the age of 70 to 103, the oldest age con- 
templated under the British Offices' Select Annuitants' Table. This 
sum equals $7.22. To buy an annuity of $1, therefore, payable at 
the end of age 70 and every year thereafter until the end of life, the 
annuitant must pay a sum (or numerous sums at stated intervals) 
which, with interest compounded annually at 3^ per cent, will 
amount, when he reaches the age of 70, to $7.22 for every dollar of 
the life annuity that he desires to buy. 

rLLUSTBATION. 

As a concrete illustration, take the case of an employee entering 
the Government service at the age of 20, expecting to retire under 
the plan at the age of 70 on an annuity equal to 1| per cent of his 
salary for each year of service. For the sake of simplicity, let us 
assume that his salary is $100 a month, and continues at that rate 
throughout the entire period of his service. An annuity at age 70 
equal to 1^ per cent of $1,200 a year for 50 years would amount to 
$900. To ascertain the price of that annuity it is necessary then 
to multiply $7.22, the present value of a life annuity of $1 beginning 
at age 70, by 900. This amounts to $6,498, and is the sum which he 
will have to accumulate by means of his savings and with the help of 
compound interest. 

As a matter of fact, however, the present value of a life annuity 

of $1 beginning at age 70 will be $7,595, rather than $7.22, because 

the bill provides for the payment of the annuities quarterly rather 

than at the end of the year. Since all persons of a given group who 

74196°— S. Doc. 745, 61-3 8 



114 EETIEEMENT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

are expected, under a given table, to die during a year will not be 
dead at the end of three months when the first payment is due, it is 
manifest that annuities payable quarterly require somewhat larger 
premiums than do those payable annually, when the first payment 
is due at the end of the first year. 

The sum, therefore, which he will have to accumulate will be 
$7.595X900=$6,835.50. 

PRESENT VALUE OF AN ANNUITY OF $1 FOR A FEMALE BEGINNING AT AGE 70. 

It is the practice of life-insurance companies to charge women 
higher rates for annuities than men. This is because of their greater 
longevity. According to the British Offices' Select Annuitants' Mor- 
tality Table, the complete expectation of life for a female at age 70 
is 10.884 years, as against 9.537 years for a male at the same age. 
The greater longevity among female annuitants may be attributed 
in some degree to the greater " self -selection " exercised by them.^ 

If the practice of the insurance companies is followed in the mat- 
ter of rates charged women annuitants, and if the rate charged a 
male for an annuity of $1, payable quarterly, beginning at age 70, 
is $7,595, the corresponding rate charged a female for a similar an- 
nuity of $1, beginning at the same age, must be, according to Table 
XV, $8,512. 

There are several reasons, however, for suggesting that the annuity 
rates charged by the Government might properly be made the same 
for women as for men. In the first place, outside of the District of 
Columbia, there are comparatively few women in the service. Table 
2 in Census Bulletin 94 (p. 10) shows that only 7.4 per cent of the 
employees in the entire civil service are women. In the District of 
Columbia women constitute 29 per cent of the employees. In the 
civil service elsewhere than in the District of Columbia women form 
only 4 per cent of the total number. 

In the second place, the " self-selection " exercised by women an- 
nuitants would probably be less severe against the Government than 
that exercised against the insurance companies. Annuities issued 
by the Government would probably be more attractive because they 
are issued by the Government without loading for expense, and be- 
cause a surplus derived either from interest earned or from excessive 
mortality among annuitants would be distributed among the sur- 
vivors, whereas annuities issued by insurance companies are generally 
on the nonparticipating plan. 

In the third place, the Government might properly follow the 
example of other nations in this respect and make some concession 
to women in the matter of conditions under which they are retired. 

»See Journal of the Institute of Actuaries, vol. 39, pp. 2, 3. 



KETIEEMENT OF SUPERANNUATED OIVIL-SEIIVICE EMPLOYEES. 115 

It is customary in other countries which have a system of retiring 
civil employees to retire women at a younger age than men. In New 
Zealand, for instance, the retirement age for women is 55, as against 
65 for men. The proposed plan makes no similar provision, but in 
view of the fact that the annuity rates, even for woriien, have been 
constructed on the most conservative basis, it seems fair to charge 
them no more than men for their annuities. 

A fourth consideration lies in the fact that a uniform rate for both 
sexes would avoid the complexity incident to the use of two sets of 
deductions and would simplify the matter of accounting. 

Table XV. — Showing the present value of a life annuity of $1, for males and 
females, heginning at various ages, first payment in three months {British 
Offices' Select Annuitants' Mortality Experience; interest Si per cent, com- 
pounded annually). 



Age. 



20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years, 

36 years 

37 years. 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years 

47 years 

48 years , 

49 years 

50 years 

51 years, 

52 years 

53 years, 

54 years 

55 years 

56 years. 

57 years, 

58 years. 

59 years. 



Male. 



S20. 874 
20. 724 
20. .570 
20. 410 
20. 246 
20. 076 
19. 900 
19. 720 
19. 534 
19. 343 
19. 147 
18. 944 
18. 735 
18. 521 
18. 301 
18. 076 
17. 844 
17. 607 
17. 364 
17. 115 
16. 860 
16. 601 
16. 335 
16. 064 
15.788 
15. 506 
15. 220 
14. 928 
14. 631 
14. 331 
14. 026 
13. 717 
13. 405 
13. 089 
12. 770 
12.448 
12. 124 
11. 799 
11.471 
11.143 



Female. 



$21. 093 

20. 951 
20. 806 
20. 655 
20. 499 
20. 339 
20. 173 
20. 003 
19. 828 
19. 048 
19. 465 
19. 277 
19. 084 
18. 888 
18. 688 
18. 485 
18. 277 
18. 067 
17. 853 
17. 635 
17. 415 
17. 191 
16. 965 
16. 735 
16. 502 
16. 265 
16. 025 
15. 781 
15. 533 
15.280 
15. 022 
14. 759 
14. 488 
14.213 
13. 930 
13. 639 
13. 341 
13. 035 
12. 720 
12. 397 



Age. 



60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 

68 years 

69 years 

70 years 

71 years 

72 years 

73 years 

74 years 

75 years 

76 years 

77 years 

78 years 

79 years 

80 years 

81 years 

82 years 

83 years 

84 years 

85 years 

86 years 

87 years 

88 years 

89 years 

90 years 

91 years 

92 years 

93 years 

94 years 

95 years 

96 years, 

97 years 

98 years, 

99 years. 



Male. 



$10. 
10. 
10. 
9. 



Female. 



J12. 066 
11. 728 
11. 383 
11. 032 
10. 675 
10. 316 
9.954 
9.591 
9.229 
8.808 
8.512 
8.159 
7.813 
7.473 
7.139 
6.814 
6.498 
6.189 
5.890 
5.600 
5.320 
5.049 
4.788 
4.536 
4.294 
4.061 
3.838 
3.625 
3.420 
3.225 
3.037 
2. 860 
2. 690 
2.528 
2.376 
2.228 
2.094 
1.959 
1.8.37 
1.702 



THESE RATES CONSERVATIVE, AS SHOWN BY COMPARISON WITH CANADIAN 

GOVERNMENT RATES. 

The fact that these rates are conservative is brought out by com- 
parison with the rates offered to the public generally by the Canadian 
Government. A system of Government annuities was recently estab- 
lished by Canada, which enables any citizen to purchase from the 
Government an annuity, which may be either immediate or deferred, 
but can not be payable before the age of 55. The rates at which 



116 EETIEEMENT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

these annuities are thus sold are less, as will be seen from Table XVI, 
than the rates here recommended. 

Table XVI. — Showing immediate annuity rates of Canadian, Government, an- 
nuities payaile quarterly, first installment three months after purchase. 



Age last birtbday 



65 years 

56 years 

57 years 

58 years 

59 years 

60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 



Amount 
required 
for a life an- 
nuity of $1. 



$n.90 
11.60 
11.31 
11.00 
10. 70 
10.40 
10.09 
9.79 
9.48 
9.18 
8.87 
8.57 
8.27 



Age last birtbday. 



68 years 

69 years 

70 years 

71 years 

72 years 

73 years 

74 years 
7.5 years 

76 years 

77 years 

78 years 

79 years 

80 years 



Amount 
required 
for a life an- 
nuity of $1. 



$7.97 
7.67 
7.38 
7.09 
6.81 
6.53 
6.25 
5.98 
5.72 
5.46 
5.21 
4.96 
4.72 



Furthermore, dej)0sits made in payment of deferred annuities are 
credited with interest at 4^ per cent, whereas the rate of interest 
proposed here is 3^ per cent. It should be added, however, that 
under the Canadian plan the depositor is paid but 3 per cent if he 
elects to receive cash instead of an annuity or dies before his annuity 
begins.^ 

INFLUENCE OF INCREASED LONGEVITY ON ANNUITY RATES. 

It is important that there be no confusion in the minds of those 
considering the basis of this plan in regard to the relation between 
the average length of life and the total span of life. The statement 
is frequently made that, owing to general improvements in the con- 
ditions under which life is maintained, the span of human life is 
lengthening. If this is so, then objection might be made to using 
mortality tables as the basis for annuity rates which were made on 
the assumption that out of 100,000 individuals living at a given age, 
all will be dead at the age of 104, as is the case with the British 
Offices' Select Annuitants' Mortality Table, or that they will be dead 
at the age of 96, as shown in the American Experience Table of Mor- 
tality, or at some other age as shown in some other table. It might 
be argued that, since the duration of life seems to be longer than in 
former years, it is not safe to use a table made on any of the present 
assumptions as to length of life. 

Even though this contention were true, it does not follow that the 
mortality table that runs to the greatest age is the safest. Several 
tables run to 104 or more, but they are not as safe as the tables used, 
because they do not contemplate so many payments in the aggregate 
from the ages of 60, 65, and TO — the retirement ages under this plan. 
That the span of life is lengthening is, however, doubted by many 



»See Canadian Government Annuities, Ottawa (1908), p. 24. 



EETIREMEISTT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 11? 

actuaries. Mr. Henry Coclrbiirn, president of the British Institute 
of Actuaries, discussing the British Offices' Tables, in his opening 
address on November 28, 1904, said : 

The new tables exhibit also a continued improvement in the value of annui- 
tant life, especially among females, which must be attributed in some degree 
to the " self-selection " exercised by the purchasers. * * * As regards the 
larger question of a general improvement in the value of human life in this 
country, and apart from the experience in any special class, there is no doubt 
that advances in matters relating to sanitary science, the care of disease, more 
healthful ways of living, have diminished at most ages the chances of death, 
and, indeed, the remark is not unusual that " people live longer than formerly." 
This improvement in vitality takes the form of, at each age, a greater average 
number of years lived by those born into the world, constituting, in actuarial 
l)arlance, a greater "expectation of life." A larger number than formerly 
reach adult age and usefulness, though without materially increasing the small 
proportion who will as heretofore attain to the highest ages; and one dis- 
tinguishes between this position and longevity in its usual meaning the pro- 
longation of life to advanced ages. In that matter it is difficult to say or to 
determine that among the population as a whole there is any appreciable 
increase.* 

The subject was very thoroughly discussed at the Fourth Interna- 
tional Congress of Actuaries held in New York in September, 1903. 
Papers on the improvement in longevity during the nineteenth cen- 
tury were presented by Mr. Samuel George Warner, of Great Britain, 
and Mr. John K. Gore, of the United States, and numerous members 
of the congress took part in the discussion. The general consensus 
of opinion seems to have been that the average length of life may be 
increasing but that the total span of life is not, or, if at all, at an 
imperceptible rate. 

To quote Mr. Warner : 

We have the growth of our great hospitals, the various organizations which 
care for the poor and the suffering, and especially for the children. Contem- 
porarily with this we have also the great advance of science, its increased 
ability to cope with disease, its triumphs in surgery, its development of sani- 
tation. If we carefully consider these various " streams of tendency," I think 
we shall not find it difficult to understand how the added length of years which 
they have combined to bring have come as a gift to childhood and youth rather 
than to old or middle age.^ 

The conclusions of Mr. Gore were to the same effect. Said he: 

In the absence of more complete data, we may conclude from the evidence 
available that during the last 30 years our urban population has experienced 
a rapidly decreasing death rate from phthisis, but that at the same time there 
has been a decided increase in the rate from diseases of the heart, kidneys, 
and lungs, from cancer and from violence. Among children, on the other 
hand, the mortality from all the diseases named, except measles, has greatly 
diminished. 

On the assumption that the general tendency of the rate of mortality of our 
urban population has been the same as that of the whole country, it may be 
concluded from the data presented in these pages that the gross death rate was 

1 See Journal of the Institute of Actuaries, vol. 39, p. 4. 

* Documents Fourth International Congress of Actuaries, p. 62. 



118 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

lower at tile end than at the beginning of the nineteenth century ; that there 
was a decided decline in the rate during the last 50 years ; that the greatest 
decline was at the youngest ages ; that there was a considerable decline in the 
rate at the so-called producing ages of life, and that there was an increase in 
the death rate at the older ages, the increase being greatest at the most ad- 
vanced period of life.^ 

In the discussion which followed the presentation of these papers. 
Dr. Alfred Manes, of Germany, said : 

It may with certainty be surmised only that a much larger percentage of new- 
born children live longer to-day than a hundred years ago ; that, therefore, the 
mortality among children has diminished, and this circumstance is undoubtedly 
due to progress in medicine and social politics. On the other hand, there is 
nothing to prove that to-day a larger percentage than, for instance, a hundred 
years ago, reaches the highest stages of life — that is, over 60 to 70 years. 
On the contrary, these cases seem to occur less frequently to-day, and that is 
not to be wondered at in view of the change that has taken place in our cir- 
cumstances of life. If we are indebted to the progress in medicine for the 
fact that nowadays more children are alive, it seems to me doubtful whether 
this is an advantage from the standpoint of political economy ; for it means 
that to-day many more delicate children, whom nature had condemned to death 
at the outset, are kept alive artificially; but this progress is scarcely con- 
ducive to the improvement of our race.^ 

Corroborative of this general view is Table XVII, taken from 
the report of the Twelfth Census, which shows that in 1900, in 
comparison with 1890, there was a very regular decrease in the 
death rate at all ages up to 60 years, and an increase in the rates at 
each age above 60 years. 

Table XVII. — Showing for the registration area the death rates at each age 
per 1,000 of population in 1890 and 1900 and the decreases and increases in 
the rates. 



Age. 



1890 



De- 
crease. 



In- 
crease. 



Under 1 year 

1 year 

2 years 

3 years 

4 years 

Under 5 years — 

5 to 9 years 

10 to 14 years 

15 to 19 years 

20 to 24 years 

25 to 29 years 

30 to 34 years 

35 to 39 years 

40 to 44 years 

45 to 49 years 

50 to 54 years 

55 to 59 years 

60 to 64 years 

65 to 69 years 

70 to 74 years 

75 to 79 years 

80 to 84 years 

85 to 89 years 

90 to 94 years 

95 years and over. 



165.4 

46.6 

20.5 

13.2 

9.4 

52.1 

5.2 

3.3 

5.2 

7.5 

8.6 

9.4 

11.0 

12.2 

15.2 

19.1 

26.3 

35.1 

52.2 

75.2 

110.5 

165.8 

241.3 

339.2 

418.9 



205.8 

84.9 

23.8 

16.8 

13.0 

66.8 

7.3 

3.8 

6.0 

8.4 

9.9 

10.6 

12.5 

13.5 

16.5 

19.2 

26.5 

32.8 

49.0 

64.5 

103.2 

144.6 

215.5 

260.0 

347.1 



40.0 
38.3 
3.3 
3.6 
3.6 
14.7 
2.1 
0.5 
0.8 
0.9 
1.3 
1.2 
1.5 
1.3 
1.3 
0.1 
0.2 



2.3 
3.2 

10.7 
7.3 
21.2 
25.8 
79.2 
71.8 



1 Documents Fourth International Congress of Actuaries, p. 615. 

2 See Proceedings Fourtli International Congress of Actuaries, vol. 2, pp. Ill, 



112. 



KETIEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 119 

Investigation of the cases of centenarians seems to bear out the 
statement that the limit of human life is about 100 years. Mr. T. E. 
Young, late president of the Institute of Actuaries, and author of a 
work On Centenarians and the Duration of the Human Race, finds 
that the majority of reputed cases of centenarians in modem times 
are not authentic, and he proves that evidence of extreme longevity 
in the past is deficient. Bulletin 13 of the Bureau of the Census 
contains the statement that the number of centenarians in 100,000 
population of known ages at the last six censuses has been as follows: 
1850, 11; 18G0, 10; 1870, 9; 1880, 8; 1890, 6; 1900, 5. This regular 
diminution indicates, not that the longevity of the population has 
been decreasing, but that in this, as in other particulars the accuracy 
of the age statistics of the censuses has been improving.^ 

The same bulletin contains a quoted statement to the effect that " in 
Prussia the number of persons (in a total population of 30,000,000) 
declared to be more than 100 years old in 1890 was 149, of whom 
more than one-half were discovered upon investigation to be of less 
age; and of these 8.8 per cent were found to be from 95 to 100, 14.3 
per cent were between 90 and 95, and the rest not yet 90 years old." ^ 

It does not, therefore, seem likely that increased longevity of the 
race will ever make the annuity rates suggested here inadequate. 
Provision for that contingency has, however, been made in the bill, 
and another table can, if necessary, be adopted by order of the Sec- 
retary of the Treasury.* 

A LIFE ANNUITY CONTRACT IS THE CONVERSE OF A LIFE INSURANCE CON- 
TRACT. 

Since the purchase of annuities is not very common in the United 
States and the question under discussion is how to determine the value 
of annuities on the lives of Government employees, it may be well to 
point out the principles underlying the computation. They are pre- 
cisely the opposite of those employed in the computation of life insur- 
ance "premiums, with which the American public is more familiar. 
This is so admirably explained by William Alexander* that his state- 
ment is given in full : 

In calculating annuities a mortality table must be employed and a rate of 
interest assumed, as in calculating the premiums on life-insurance policies. In 
fact, investigation will show that a life annuity is simply the opposite of a policy 
of life insurance. In the case of the policy, a man pays the company a small 
suin annually as long as he lives, in consideration of which the company agrees 

1 See Census Bulletin 13, entitled "A Discussion of Age Statistics," by Allya A. Young, 
p. 20. 

2 See Mayo-Smith, Statistics and Sociology, p. 61. 
' See last sentence of sec. 1 of the proposed bill. 

* See Life Insurance Company, by William Alexander, p. 47. 



120 EETIEEMENT OP SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

to pay a large sum at his death. In the case of the annuity, a man sinks in the 
beginning a large sum, in consideration of which the company agrees to pay 
him a small sum annually as long as he lives. 

In view of the fact that the conditions are reversed, and for other reasons, it 
is usual in calculating annuities to adopt, on the one hand, a mortality table 
framed on a somewhat more rigid basis than that employed in calculating in- 
surance premiums ; and, on the other hand, to assume a somewhat more liberal 
rate of interest, such, for example, as 3i per cent. 

The younger a man is the less it costs to obtain a policy of life insurance. 
In the case of an annuity the reverse is true. If a man is old, a given sum 
will yield a large annuity ; if he is young, the same sum will yield but a small 
annuity. 

In the case of life insurance the longer the policy holder lives the greater 
:he advantage to the company ; hence the comf)any insists upon medical ex- 
iminations in order that it shall not assume risks on impaired lives. In the 
ease of the annuity, on the other hand, no examination is required, because the 
sooner the annuitant dies the less the company will have to pay. Hence there 
is no need for the company to protect itself by an examination. As the annui- 
tant is well aware of this fact, there is no danger that he will sink his capital 
unless he believes himself to be in good health. 

The man who has the greatest need of life insurance is the one who has a 
family dependent upon him; the man who invests in an annuity is usually one 
who has no dependents. 

DEDUCTIONS FROM SALARIES. 

After deciding on the mortality table and the rate of interest 
proper for the purpose, and by means of them constructing the 
rates which the Government should charge for the annuities granted 
its employees, the fourth step in working out the proposed plan is to 
determine what amount will have to be deducted from the employees' 
salaries to create the sums necessary for the purchase of the annuities. 

It has been pointed out that this plan differs essentially from all 
the plans previously laid before Congress, in that it discards as un- 
fair to the employees of different ages the idea of deducting from all 
salaries a uniform percentage of salary, large or small. 

The problem then under this plan is to determine what percentage 
of salary must be deducted at each age of entrance into the service for 
each grade of salary. Each class of cases must be treated indi- 
vidually. Each employee must set aside that percentage of his 
salary necessary, with the help of compound interest, to accumulate 
a sum sufficient to buy him at the age of retirement an annuity equal 
to 1^ per cent of his salary for each year he has served. If he should 
set aside too small a percentage of his salary, then the sum to his 
credit on reaching the retirement age would be insufficient for the 
purchase of the annuity desired. On the other hand, there is no 
need to set aside a larger percentage of his salary than that actually 
required for the purchase of his annuity, for all his fellow employees 



RETIREMENT OP SUPERANNUATED CIVTL-SERVICE EMPLOYEES. 121 

are accumulating in the same way the sums necessary to purchase 
their own annuities, and have no need of his help. 

HOW TO DETERMINE THE AMOUNT OF DEDUCTIONS FROM SALARIES. 

To determine the amounts that must be deducted from any salary 
at any entrance age, all that is necessary, in addition to the data 
already secured, in computing the cost of the employee's annuity is 
Table XVIII, which shows the amount to which a deposit of $1 a 
month, first payment immediate, will accumulate at 3^ per cent per 
annum, compound interest, at the end of the number of years which 
the employee will haVe to serve before reaching the age of retirement. 

Table XVIII. — Shotving the amount to which a deposit of $1 per month {first 
payment immediate) will accumulate at 3i per cent per annum compound 
interest at the end of a given term of years. 



Term of years. 


Amount 
of accu- 
mulation. 


Terra of years. 


Amount 
of accu- 
mulation. 


Tenu of years. 


Amount 
of accu- 
mulation. 


Term of years. 


Amount 
of accu- 
mulation. 


1 


$12.23 

24.88 

37.98 

51.54 

65.57 

80.09 

95.12 

110.68 

126. 78 

143.45 

160. 69 

178.55 

197.02 


14 


$216. 16 
235. 94 
256. 42 
277. 03 
299.57 
322. 28 
345. 79 
370. 12 
395.30 
421.36 
448. 34 
476. 26 
505. 16 


27 


$535. 06 
566. 02 
598. 06 
631.22 
665.54 
701.06 
737.82 
775.87 
815.26 
856.02 
898.21 
941.87 
987.06 


40 


$1,033.84 


2 


15 


28 


41 


1,082.25 


3 


16 


29 


42 


1,132.36 


4 


17 


30 


43 


1,184.22 


5 


18 


31 


44 

45 


1,237.89 


6 


19 


32 


1,293.45 


7 


20 


33 


46 


1,3-50.94 


8 


21 


34 


47 

48 


1,410.45 


9 


22 . . . 


35 


1, 472. 05 


10 


23 


36 


49 


1,535.80 


11 


24 


37 


50 


1,601.78 


12 


25 


38 






13 


26 


39 













By dividing the sum which has been previously ascertained as the 
cost of the annuity by the amount shown in the above table (Table 
XVIII) which a deposit of $1 per month will accumulate in the given 
number of years, the amount of the monthly deduction required from 
the monthly salary during all the years of service to accumulate the 
price of the annuity is obtained. Table XIX, which follows, shows 
the per cent required to be deducted monthly from any salary at 
different entrance ages to provide an annuity for a male at age 70 
equal to 1| per cent of the annual salary for each year of service. 



122 KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table XIX.- — Shoiving amount required to he deducted from a monthly salary 
of $100 (per cent of other salaries) to provide an annuity at age 70 equal to 

li per cent of annual salary for each year of service. 



A. 



Age of retire- 
ment. 



B. 



A ge of en- 
trance into 
service. 



Years of 
service 
(A-B). 



D. 



Amount 
of an- 
nuity. 



Cost of an- 
nuity 
(DXS7.595). 



Amount of 

$1 a month 

at end of 

years shown 

in column C. 



G. 



Monthly 

deduction 

from 



(E^F). 



Monthly 
deduction 
from salary 
adjusted to 
"nearest 
tenth of a 
dollar." 



70 years 
70 years 
70 years 
70 years, 
70 years 
70 years, 
70 years, 
70 years 
70 years. 
70 years, 
70 years. 
70 years. 
70 years. 
70 years, 
70 years, 
70 years. 
70 years, 
70 years, 
70 years. 
70 years. 
70 years. 
70 years. 
70 years. 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years, 
70 years. 
70 years. 
70 years, 
70 years 
70 years, 
70 years, 
70 years, 
70 years, 
70 years 
70 years 
70 years, 
70 years 
70 years 
70 years. 



20 years . 

21 years. 

22 years . 

23 years . 

24 years . 

25 years . 

26 years . 

27 years . 

28 years . 

29 years . 

30 years . 

31 years . 

32 years . 

33 years . 

34 years . 

35 years . 

36 years . 

37 years . 

38 years . 

39 years . 

40 years . 

41 years . 

42 years . 

43 years . 

44 years . 

45 years . 

46 years . 

47 years . 

48 years . 

49 years . 

50 years . 

51 years . 

52 years . 

53 years . 

54 years . 

55 years . 

56 years . 

57 years . 

58 years . 

59 years . 

60 years . 

61 years . 

62 years . 

63 years . 

64 years . 

65 years . 

66 years . 

67 years . 

68 years . 

69 years . 



$900. 00 
882. 00 
864. 00 
846. 00 
828. 00 
810. 00 
792. 00 
774. 00 
756. 00 
738. 00 
720. 00 
702. 00 
684. 00 
666. 00 
648. 00 
630. 00 
612. 00 
594. 00 
576. 00 
558. 00 
540. 00 
522. 00 
504. 00 
486.00 
468. 00 
450. 00 
432. 00 
414, 00 
396. 00 
378. 00 
360. 00 
342. 00 
324. 00 
306. 00 
288. 00 
270. 00 
252. 00 
234. 00 
216. 00 
198. 00 
180. 00 
162. 00 
144. 00 
126. 00 
108. 00 
90.00 
72.00 
54.00 
36.00 
18.00 



56, 835. 50 
6, 698, 79 
6, 562, 08 
6, 425, 37 
6, 288, 66 
6,151,95 
6,015.24 
5, 878. 53 
5,741,82 
5, 605. 11 
5. 468. 40 
5; 331. 69 
5.194.98 
5; 058. 27 
4,921.56 
4, 784. 85 
4,648.14 
4,511.43 
4, 374. 72 
4,238.01 
4,101.30 
3, 964, 59 
3, 827, 88 
3,691.17 
3, 554. 46 
3, 417. 75 
3,281.04 
3, 144. 33 
3, 007. 62 
2,870.91 
2,734.20 
2, 597. 19 
2,460.78 
2, 324. 07 
2, 187. 36 
2, 050. 65 
1,913.94 
1, 777. 23 
1, 640. 52 
1, 503. 81 
1, 367. 10 
1,230.39 
1, 093. 68 
956. 97 
820. 26 
683. 55 
546. 84 
410. 13 
273.42 
136. 71 



SI, 601. 78 
1, ,535. 80 
1, 472. 05 
1,410.45 
1,350.94 
1,293.45 
1,2.37.' 89 
1, 184. 22 
1, 132, 36 
1, 082, 25 
1, 033. 84 
987. 06 
941.87 

898. 21 
856. 02 
815. 26 
775. 87 
737. 82 
701. 06 
665. 54 

631. 22 
598. 06 
566. 02 
535. 06 
505. 16 
476. 26 
448.34 
421,36 
395, 30 
370, 12 
345, 79 
322, 28 
299. 57 
277. 63 
256.42 
235. 94 
216. 16 
197. 02 
178. 55 
160. 69 
143. 45 
126. 78 
110. 68 

95.12 
80.09 
65.57 
51.54 
37. 98 
24.88 
12.23 



84. 267 
4,362 
4,458 
4.555 
4.655 
4.756 
4.859 
4.964 
5.071 
5.179 
5.289 
5.402 
5.516 
5.631 
5.749 
5.869 
5.991 
6.114 
6.240 
6.368 
6.497 
6.629 
6.763 
6.899 
7.036 
7.176 
7.318 
7.462 
7.608 
7.757 
7.907 
8.060 
8.214 
8.371 
8.530 
8.691 
8.854 
9.020 
9.188 
9.358 
9.530 
9.705 
9.881 
10, 061 
10,242 
10,425 
10, 610 
10. 799 
10. 989 
11. 178 



«4.30 
4.40 
4.50 
4.60 
4.70 
4.80 
4.90 
5.00 
5.10 
5.20 
5.30 
5.40 
S.50 
5.60 
5.70 
5.90 
6.00 
6.10 
6.20 
6.40 
6.50 
6.60 
6.80 
6.90 
7.00 
7.20 
7.30 
7.50 
7.60 
7.80 
7.90 
8.10 
8.20 
8.40 
8.50 
8.70 
8.80 
9.00 
9.20 
9.40 
9.50 
9.70 
9.90 
10.10 
10.20 
10.40 
10.60 
10.80 
11.00 
11.20 



To determine the amount of deduction required from any salary 
at any age, multiply the amount shown as required from a salary of 
$100 at the age desired by the ratio of the salary for which the deduc- 
tion is desired to 100. In other words, the deduction required from a 
salary of $100 for an employee entering the service at age 30 is shown 
in the table as $5,289. For a salary of $150 for an employee entering 
the service at age 30 the deduction required is determined as follows : 

150 

$5,289 X = $7,933. 

100 



BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 123 

As a concrete illustration of the amount of salary to be deducted 
for the creation of an annuity payable quarterly from age 70, of 
1| per cent of salarj?' for each year of service, take the case of the 
employee mentioned in the illustration on pages 113, 114. It was 
ascertained that he would have to accumulate the sum of $7,595 
times 900, or $6,835.50, in order to obtain a life annuity of $900, 
which would be an annuity of 1^ per cent of his salary of $1,200 for 
50 years, he having entered the service at age 20. To ascertain what 
his monthly deductions from salary would be, divide $6,835.60 by 
the amount which a deposit of $1 per month will accumulate at 3^ 
per cent per annum, compounded annually, at the end of 50 years. 
According to the interest table that is $1,001.78. The amount of his 
monthly deduction from salary is therefore $6,835.50 divided by 
$1,601.78, equaling 4.267, and that it remains until he receives a pro- 
motion in salary. 

PERCENTAGE OF SALARY DEDUCTED VARIES WITH RETIREMENT AGE. 

The percentage of salary to be deducted must necessarily be larger 
when retirement is contemplated at the ages of 65 and 60 than it is 
when retirement takes place at the age of 70, since the time during 
which contributions for the purchase of annuities are accumulated at 
compound interest is 5 years shorter in one case and 10 years shorter 
in the other. In addition to this, the time during which the annui- 
ties will be payable is 5 years longer in one case and 10 years longer 
in the other. The deductions from salaries for retirement at age 65 
are shown in Table XX ; for retirement at age 60 in Table XXI. 



124 KETTREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table XX. — Showing amount required to be deducted from a monthly salary 
of $100 (per cent of other salaries) to provide an annuity at age 65 equal to 
1^ per cent of annual salary for each year of service. 



A. 



Age of retire- 
ment. 



65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years, 
65 years. 
65 years. 
65 years. 
65 years. 
65 years. 
65 years, 
65 years, 
65 years 
65 years 
65 years, 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 
65 years 



B. 



Age of en- 
trance into 
service. 



years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 
years 



Years of 
service 
(A-B). 



Amount 

of 
annuity. 



$810 
792 
774 
756 
738 
720 
702 
684 
666 
648 
630 
612 
594 
576 
558 
540 
522 
504 
486 
468 
450 
432 
414 
396 
378 
360 
342 
324 
306 
288 
270 
252 
234 
216 
198 
180 
162 
144 
126 
108 
90 
72 
54 
36 
18 



E. 



Cost of 

annuity 

(DX$9.177). 



87,433.37 
7,268.18 
7, 103. 00 
6,937.81 
6,772.63 
6,607.44 
6, 442. 25 
6,277.07 
6,111.88 
5,946.70 
5, 781.. 51 
5, 616. 32 
5,451.14 
5, 285. 95 
5, 120. 77 
4, 955. 58 
4,790.39 
4, 625. 21 
4,460.02 
4, 294. 84 
4, 129. 65 
3.964.46 
3, 799. 28 
3.634.09 
3,468.91 
3,303.72 
3, 138. .53 
2, 973. 35 
2, 808. 16 
2,642.98 
2,477.79 
2,312.60 
2, 147. 42 
1,982.23 
1,817.05 
1.651.86 
1,486.67 
1,-321.49 
1, 156. 30 
991.12 
825. 93 
660. 74 
495. 56 
330. 37 
165. 19 



F. 

Amount of 
$1 a month 
at end of 
years shovs^n 
in column C. 



«1,293.45 

1,237.89 

1,184.22 

1,132.36 

1,082.25 

1,033.84 

987.06 

941. 87 

898. 21 

856. 02 

815. 26 

775. 87 

737. 82 

701.06 

665. 54 
631. 22 
598. 06 
566. 02 
635. 06 
505. 16 
476. 26 
448. 34 
421. 36 
395. .30 
370. 12 
345. 79 
322. 28 
29H. .■)7 
277. 63 
256. 42 
23.1. 94 
216. 16 
197. 02 

178. 55 
160. 69 
143. 45 
126. 78 
110. 68 

95.12 
80. 09 
65.57 
51.54 
37.98 
24.88 
12.23 



O. 

Monthly 
deduction 
from salary 

(E-5-F). 



$5. 747 
5.871 
5.998 
6.127 
6.258 
6.391 
6.527 
6.664 
6.805 
6.947 
7.092 
7. 239 
7.388 
7.540 
7.694 
7.851 
8.010 
8.171 
8. 336 
8.502 
8.671 
8. 842 
9.017 
9.193 
9.372 
9. 554 
9.738 
9. 925 
10. 115 
10. 307 
10. .502 
10. 699 
10. 899 
11. 102 
11. 308 
11.515 
11. 726 
11.940 
12. 156 
12. 375 
12. 596 
12.820 
13. 048 
13. 278 
13. 607 



H. 

Monthly 
deduction 
from salary 
adjusted to 
"nearest 
tenth of a 
dollar." 



J5.70 
5.90 
6.00 
6.10 
6.30 
6.40 
6.50 
6.70 
6.80 
6.90 
7.10 
7.20 
7.40 
7.60 
7.70 
7.90 
8.00 
8.20 
8.30 
8.60 
8.70 
8.80 
9.00 
9.20 
9.40 
9.60 
9.70 
9.90 
10.10 
10.30 
10. 50 
10. 70 
10.90 
11.10 
11.30 
11.50 
11.70 
11.90 
12.20 
12.40 
12.60 
12.80 
13.00 
13.30 
13.50 



KETIEEMENT OF SUPERANNUATED OIVILi-SERVICE EMPLOYEES. 125 

Table XXI. — Shoicing amount required to he deducted from a monthly salary 
of $100 (per cent of other salaries) to provide an annuity at age 60 equal to 
li per cent of annual salary for each year of service 



A. 

Age of retire- 
ment. 


B. 

Age of en- 
trance into 
service. 


C. 

Years of 
service. 
(A-B). 


D. 

Amount 
of annu- 
ity. 


E. 

Cost of 

annuity. 

(DX$10.815.) 


F. 

Amount of 
$1 a month 

at end of 
years 

shown in 
column C. 


G. 

Monthly 

deduction 

from 

salary. 

(E^F.) 


H. 

Monthly 
deduction 
from salary 
adjusted to 
"nearest 
tenth of a 
dollar." 


60 years 


20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

30 years 

35 years 

40 years 

45 years 

50 years 

55 years 

59 years 


40 
39 
38 
37 
36 
35 
34 
30 
25 
20 
15 
10 
5 
1 


$720 
702 
684 
666 
648 
630 
612 
540 
450 
360 
270 
180 
90 
18 


87,786.80 
7,592.13 
7,397.46 
7, 202. 79 
7,008.12 
6,813.45 
6,618.78 
5,840.10 
4, 866. 75 
3, 893. 40 
2,920.05 
1, 946. 70 
973.35 
194.67 


11,033.84 
987. 06 
941.87 
898. 21 
856. 02 
815. 26 
775. 87 
631. 22 
476. 26 
345. 79 
235. 94 
143. 45 
65.57 
12.23 


$7. 532 
7.692 
7.854 
8.019 
8.187 
8.357 
8.531 
9.252 
10.219 
11. 259 
12. 376 
13. 570 
14.844 
15.917 


87.50 


60 years 


7.70 


60 years 


7.90 


60 years 


8.00 


60 years 


8.20 


60 years 


8.40 


60 years 


«.50 


60 years 


9.30 


60 years 


10.20 


60 years 


11.30 


60 years 


12.40 


60 years 


13.60 


60 years 


14.90 


60 years 


15.90 







PERCENTAGE OF SALARY DEDUCTED VARIES WITH ENTRANCE AGE, BUT NOT 

WITH SALARY. 

It will be seen that for the younger ages, when retirement at age 
70 is contemplated, less than 5 per cent of salary — ^the percentage 
most often suggested in the schemes proposing a uniform rate of 
deduction from salaries — will be suflScient, but for the older ages 
more than 5 per cent will be necessary. Those entering the service 
late in life and having but a short period of accumulation must set 
aside a larger sum each month in proportion to their salaries than 
those entering early, who have a longer period of accumulation. 
This puts a premium on the early entrance ages, which is as it should 
be. On the other hand, it is wholly fair to the elderly person who 
enters the service, the deductions from his salary being in no case 
excessive, his savings being accumulated for him at compound in- 
terest and some provision thus assured him for his old age. It is 
important to remember, too, that after the age of 70 the accumula- 
tions increase very rapidly, and that the price of the annuity, on 
the other hand, decreases very fast, so that an employee who entered 
the service late in life and would have a very small annuity to his 
credit at 70, by remaining a few years after reaching that age, under 
the provisions of the bill (see sec. 4, p. 211), would retire on a 
very comfortable annuity. For instance, as is shown by Table XXII, 
an employee entering the service at age 50, on a salary of $100 a 
month would, on reaching the age of 70, have to his credit $2,734, 
which would then buy him an annuity of but $360 a year. By re- 
maining in the service until he reached the age of 75 his accumula- 
tions would have increased to $3,903, which would then purchase an 



126 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

annuity of $637 a year. The number of those entering so late in life 
is naturally not great and is confined largely to those whose work — 
that of watchman or messenger — is light enough to permit its con- 
tinuance late in life. 



Table XXII. — Slioiving amount of cash accumulation at the end of various years 
of service payable to employee on resignation or to Ms legal heirs in case of 
death; and life annuity that may he granted an resignation in lieu of cash. 





Age on entrance into service and montlily deduction required from a salary of 
$100 (retirement age, 70). 


Reliretnent at end 
of years. 


20-.$4 


.267. 


25—34.756. 


30— $5,289. 


35— $5,869. 




Cash. 


Annuity. 


Casli. 


Annuity. 


Cash. 


Annuity. 


Cash. 


Annuity. 


6 


$342 

406 

472 

541 

612 

686 

7(i2 

841 

922 

1 , (107 

1,094 

1JS5 

1,278 

1 , 375 

1,475 

1,579 

1,087 

1,798 

1,913 

2,032 

2, 156 

2,283 

2,415 

2,5.52 

2, 693 

2, 840 

2,991 

3,148 

3,311 

3,479 

3,653 
3,8.33 
4,019 
4,212 
4,411 

4,618 
4,832 
5,053 
5,282 
5,519 

5,764 
6,018 
6, 281 
6, .553 
6,835 


0) 

(•) 
(') 
(') 
(') 
(' 
(' 

(') 

(0 

(') 

0) 
$87 
95 
103 
112 
121 
131 
142 
153 
165 
178 
192 
207 
223 
240 
259 
279 

301 
325 
350 
378 
408 

440 

476 
514 
556 
601 

651 

705 
706 
829 
900 


J381 

452 

526 

603 

682 

764 

849 

937 

1,028 

1,122 

1,220 

1,320 

1,425 

1,533 

1,645 

1,760 

1,880 

2,004 

2,132 

2,205 

2,403 

2,545 

2, 692 

2,844 

3,002 

3,165 

3,334 

3,509 

3,690 

3,877 

4,071 

4,272 
4, 480 
4, 694 
4,917 

5,147 
5,3S5 
5,632 
5,887 
6,152 


0) 

(') 

S 
lii 

a 

(') 
(') 

S106 
116 
126 
137 
149 
161 
175 
190 
200 
223 
241 
261 
283 
306 
331 
358 

388 
421 
456 
494 
536 

581 
631 
685 
745 
810 


,■5424 
503 
585 
671 
759 
850 
944 
1,042 
1,143 
1,248 
1,356 
1,408 
1,584 
1,705 
1,829 
1,958 
2,091 
2,229 
2,371 
2,519 
2, 672 
2,830 
2,994 
3,163 
3,339 
3,520 
3,708 
3,902 
4,104 
4,312 

4,527 
4,751 
4, 982 
5,221 
5,468 


?! 

(') 
(') 
(') 
(') 

?! 

$130 
143 
156 
170 
186 
202 
220 
240 
261 
284 
309 
336 
365 
397 
432 
470 

511 

557 
606 
661 
720 


$470 
558 
650 
744 
842 
943 
1,048 
1,156 
1,269 
1,385 
1,505 
1,629 
1,758 
1,891 
2,029 
2,172 
2,320 
2,473 
2,631 
2,795 
2,965 
3,140 
3,322 
3,510 
3,705 
3,906 
4,115 
4,330 
4,554 
4,785 


?! 


7 


8 




9 


(M 


10 


(') 


11 


(') 


12 


(') 


13 


(1) 


14 


(1) 


15 


(n 


16 


(ii 


17 


(1) 


18 


(') 


19 


(') 


20 


$163 


21 


179 


22 


197 


23 


216 


24 


236 


25 


258 


26 

27 


283 
309 


28 


338 


29 


369 


30 . 


404 


31 


441 


32 


482 


33 


527 


34 


576 


35 


630 






36 


6,075 

5,374 
6,6S5 
6.006 
6,339 


696 


37 


769 


38 


849 


39 


937 




1,034 








5,782 
6,106 
6,442 
6, 790 
7,150 


793 
873 

9f;2 

1,059 
1,107 
















44 




















6,490 
6,844 
7,201 
7,575 
7,962 


890 

979 

1,075 

1,182 

1,299 






:::::::::. 
















49 
































7,197 
7,570 
7, 958 
8,359 


987 
1,083 
1,]S8 
1,304 




52 


























64 








. 

















1 Section 7 of Ilrrnso bill No. 2201 :? provides tliat on IcnvinK the service prior to tlie age 
of retiroiiK'nt an annuity will not be granted unless the cash to the employee's credit 
amounts to at Uuist $1,000. 



EETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 127 

Table XXII. — Showing amount of ca.^h accumulation at the end of various years 
of service payable to employee on resignation, etc. — Continued. 





Age on 


entrance Into service and monthly deduction required from a salary of 
SlOO (retirement age, 70). 


Retirement at ead 
of years. 


40— S 


i.497. 


45— ?7.176. 


50— $7,907. 


55-$8.691. 


60-89.530. 




Cash. 


Annu- 
ity. 


Cash. 


Annu- 
ity. 


Cash. 


Annu- 
ity. 


Cash. 


Aeau- 
ity. 


Cash. 


Annu- 
ity. 


6 


So20 
filS 
719 
824 
932 

1,014 
1,100 
1,2S0 
1,404 
1,533 

1,666 
1,804 
1,946 
2,094 
2,247 

2,405 
2,568 
2,738 
2,913 
3,094 

3,282 
3,476 
3,677 
3,886 
4,101 


0) 

(') 

(' 

(' 

(') 

(') 
(') 
') 

8 
?! 

$208 

229 
253 
279 
307 
337 

371 

407 
447 
492 
540 


$575 

683 

794 

910 

1,029 

1,153 
1,281 
1,414 
1,551 
1,693 

1,840 
1,992 
2,150 
2,313 
2,481 

2,656 
2,837 
3,024 
3,217 
3,418 


(') 
(') 

('^ 
0) 
(') 

('^ 
(') 

^) 
^') 

v) 
(1) 

(') 

S270 

300 
332 

3GS 
407 
450 


$033 

752 

875 

1,002 

1,134 

1,271 
1,412 
1,558 
1,709 
1,806 

2,028 
2,195 
2,309 
2,548 
2,734 


0) 

0) 

!!! 

(') 

ii| 

(') 
(') 

(') 
(') 

(' 
(0 

$360 


$696 

827 

962 

1,102 

1,247 

1,397 
1,552 
1,712 
1,879 
2,051 


0) 

0) 
(') 

s 

(') 
(') 
(') 
(') 

$270 


$763 
906 
1,055 
1,212 
1,367 


(') 
(') 
(') 
(') 
$180 


7 


8 


9 


10 






11 


1,537 
1,713 
1.895 
2,084 
2,279 


211 


12 


245 


13 


283 


14 


325 


15 


372 






16 


2,245 
2,446 
2,654 
2,869 
3,092 


308 
350 
396 
448 
505 




17 






18 






19 






20 












21 


2,952 
3,177 
3,411 
3, 653 
3,903 


405 
454 
509 
570 
637 




22 










23 










24 










25 






















3,660 
3,910 

4, 169 
4,438 
4,715 


502 
559 
622 
692 
769 




27 














28 














29 














30 




























31 


4,307 
4,642 
4,927 
5,221 
5,526 


599 
664 
736 
815 
902 




32 


















33 


















34 
















35 

































•Section 7 of House bill No. 22013 provides that on leaving the service prior to the age of retirement an 
annuity will not be granted unless the cash to the employee's credit amounts to at least $1,000. 

AMOUNT OF DEDUCTION FROM SALARY VARIES ONLY WITH CHANGE IN 

SALARY. 

The bill provides that deductions shall be varied to correspond to 
any change in the salary of the employee. It is apparent, of course, 
that if this were not done the annuities would not amount to 1^ per 
cent of salary for each year of service in cases where there had been 
changes in salary during the years of service. The deduction from 
salary in cases of promotion is computed on the salary increase at 
the attained age — that is, the age of the employee when the promo- 
tion takes place. In other words, the promoted employee is regarded 
as a new entrant to the extent of his increase in salary. Table 
XXIII shows how deductions from salaries may be adjusted to 
correspond to promotions. 



128 RETTEEMENT OF SUPEKANNUATED CIVIL-SERVICE EMPLOYEES. 

Table XXIII. — Shoifing how deductions from salaries may he adjusted to cor- 
respond to promotions. 



Monthly 
deduc- 

tior, from 
salary. 



Deductions 
plus inter- 
est at age of 
retirement. 



A entered service at age 20 at salary of $900 a year, or $75 a month. Deduction re- 
quired at age 20 is 4.267 per cent of salary . 4.267 X $75 

At age 22 his salary was increased to $1,000 a year, or $83.33 a month. Increase in 
salary, $100 a year, or $8.33 a month. Deduction required at age 22 is 4.45S per 
cent of salary increase. 4.458X$8.33 



Deduction thereafter 

At age 25 his salary was increased to $1,200 a year, or $100 a month. Increase in 
salary, $200 a year, or $16.66 a month. Deduction required at age 25 is 4.756 per 
cent of salary increase. 4.756X$16.66 



Deduction thereafter 

At age 32 his salary was increased to $1,400 a year, or $116.66 a month. Increase in 
salary. $200 a year, or $16.66 a month. Deduction required at age 32 is 5.516 per 
cent of salary increase. 5.516X$16. 66. ■ 



Deduction thereafter 

At age 35 his salary was increased to $1,600 a year, or $133.33 a month. Increase in 
salary, $200 a year, or $16.66 a month. Deduction required at age 35 is 5.869 per 
cent 01 salary increase. 5.809X$16.66 



Deduction thereafter 

At age 38 his salary was increased to $1,800 a year, or $150 a month. Increase in 
salary, $200 a year, or $16.66 a month. Deduction required at age 38 is 6.240 per 
cent of salary increase. 6.240X$16.66 



Deduction thereafter. 



1'otal . 



$3.20 
.37 



3.57 
.79 



4.36 

.92 

5.28 



6.26 
1.04 



7.30 



$5, 125. 70 
544.66 

1,021.83 

866.62 

798.95 

729. 10 



9,086.76 



Summary, 



2 years at 

3 years at 
7 years at 
3 years at 
3 years at 

32 years at 



$900 = $1, 800 
1,000= 3,000 
1,200= 8,400 
1,400= 4,200 
1,600= 4,800 
1, 800 = 57, 600 



50 years' service = 79, 800 X 11 per cent = $1,197 = annuity required. 

$1,197X$7.595 (value of an annuity of $1 at age 70) =$9,091.21. 
Amount to credit of employee on retirement at age 70=$9,086.76. 

Note. — The difference of $4.45 between the value of the annuity ($9,091.21) and the 
amount to the credit of the employee at retirement ($9,086.76) is due to the omission of 
decimals from the monthly deductions at the various ages. 

Those already in the service at the time the plan goes into effect 
must be regarded as new entrants and the amount of their deduc- 
tions from salary computed on the basis of their age at that time. 

As an illustration of how the plan will work in the case of an em- 
ployee who has been in the service some time when the law goes into 
effect, take the case of an employee 40 years of age, who has been in 
the service 15 years at the time of the enactment of this plan into 
law. He would on retirement 30 years hence be entitled to receive 
an annuity from the Government of 1| per cent of his total compen- 
sation for service up to the passage of such a law, or 22.5 per cent of 
his average annual salary during that time, plus the amount of his 
own savings from the time the law went into effect until his retire- 



RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 129 

ment, after 30 years, at the age of 70. Suppose that this employee 
receives a salary of $1,200 per annum throughout the whole term of 
his service. On retiring at the age of 70 he would be entitled to an 
annuity of $810 for the remainder of his life, $270 from the Gov- 
ernment, as 1^ per cent of his total compensation during the 15 years 
he served prior to the passage of the retirement law, and $540 as an 
annuity from his own savings — that is, 1^ per cent of his salary for 
every year of service after the passage of the law. The annuity from 
the Government (the $270) would have no cash-surrender value. It 
could be taken only as an annuity, never in a lump sum, and could 
only be obtained in case the employee remained in the service until 
he reached the retirement age. The $540, on the other hand, which 
represents his own savings, plus interest, could be converted into the 
cash sum necessary to buy that annuity, $4,101.30. The employee 
could always, on leaving the service, withdraw his own money, but 
the contribution by the Government for services rendered prior to 
the passage of this act must always be taken in the form of an an- 
nuity. 

AVERAGE RATE OF DEDUCTION FROM SALARY ONLY 5 PER CENT. 

Some criticism has been brought against this plan by employees 
now old in the service, who will have to be regarded as new entrants, 
on the ground that the rates of deduction for them are excessive. 
This criticism seems to be liased on incomplete understanding of the 
situation. 

The percentage of salary deducted, to provide for retirement at 
age 70, it will be seen by reference to Table XIX, ranges from 4.3 
in the case of those 20 years old at the time of entrance into the 
service or at the time of the passage of the bill to 11.2 in the case of 
those 69 years old at such time. While a deduction of 11.2 per cent 
from salary seems, at first glance, to be high, the return made by the 
Government for such contribution is so generous that the employee 
has no just cause for complaint. The deduction would only be made 
for one year. On a salary of $1,200 that would be $11.20 a month, 
or $134.40 for the year. At the end of that time the employee would 
be retired, under Senate bill 1944, on an annuity of $540 a year if 
he had been in the service 30 years, an annuity of $720 if he had been 
in the service 40 years, of $900 if he had been in the service 50 years, 
and so on. In other words, in consideration of his saving $134.40 for 
one year, the Government would pay him 401.8 per cent a year on 
that saving for the rest of his life, provided he had been 30 years 
in the service; 635.7 per cent a year if he had been employed 40 years; 
or 669.6 per cent if 50 years. It would be hard to find, at age 69, 
a better investment for twelve monthly installments of $11.20 each. 
If the employee should happen to die during the year before reaching 
74196°— S. Doc. 745, 61-3 9 



130 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

the age of retirement, the full amount he had contributed, plus in- 
terest, would be returned to his family. If he lived to the age of 
retirement he could, if he preferred, draw his contribution for the 
one year ($134.40) in cash, but the Government's payment to him for 
the other 29, 39, or 49 years would be paid, under Part II of the pro- 
posed plan, only in the form of an annuity. In any possible event, 
he would be well repaid for being compelled to save $11.20 a month 
for 12 months. 

Comparatively few of the employees are 69 years of age. The 
great majority are under 40 years of age. Between the ages of 20 
and 40 the rate of deduction from salary ranges from 4.3 to 6.5 per 
cent, or on a salary of $1,200 from $4.30 to $6.50 a month. As the 
average age of entrance into the service is about 27 years and the 
rate of deduction at that age is an even 5 per cent, the average amount 
deducted from salaries, once the plan were in full operation, would 
be 5 per cent. 

ADVANTAGE TO THE SERVICE OF INCREASING DEDUCTION WITH INCREASE 

or ENTRANCE AGE. 

The fact that the percentage of deductions from salary increases 
with the age of entrance into the service works out greatly to the 
good of the service, since it offers more encouragement to the young 
than it does to the old to enter the service. Two individuals enter- 
ing the employ of the Government, one at the age of 20 and the other 
at the age of 60, on salaries of $100 a month, would be required to set 
aside, respectively, 4.3 per cent of salary and 9.5 per cent. It 
amounts, therefore, to this: That the younger employee would re- 
ceive $95.70 a month, while the older one would receive $90.50, a fact 
that would have a tendency to discourage the elderly from entering 
the service. The advantage of this is seen when contrasted with the 
effect on the service of any form of civil pension which would retire 
all employees after 10 years or some other period of service. Good 
places in the business world are likely to become increasingly difficult 
to secure at advanced ages. The promise of a pension would, there- 
fore, make the Government service look very attractive to those 
superannuated unfortunates who had not been able to place them- 
selves well in life, and the average age of applicants for civil-service 
positions would without doubt be much higher than it is now. 



CHAPTER in. 



MINOR PEOVISIONS OF THE PROPOSED BILL. 

Having considered the mathematical basis of the proposed plan 
of retiring civil employees of the Government, it is next in order 
to take up some of the minor provisions of the bill. While these 
do not vitally affect the essential features of the plan, they are im- 
portant as adding to its equitableness and attractiveness. 

PROVISIONS FOR SEPARATION FROM SERVICE. 

It is right that a measure intended primarily for the improvement 
of the public service should contain some provision for the removal, 
not only of those who are superannuated, but also of those who have 
become disabled through illness or accident. It is also right, from 
the standpoint of humanity, that some cognizance should be taken 
of the condition in which death or dismissal from the service may 
find the employee. Not the least merit of a savings plan of retire- 
ment, as opposed to any form of civil pension, is the fact that it 
permits of an extension of its benefits automatically and with justice, 
to both the individual and the Government, to all cases in which 
separation from the service occurs. 

There are five ways in which an individual may be separated from 
the civil service. These may be listed as follows: 

(1) By retirement because of old age. 

(2) By resignation. 

(3) By dismissal. 

(4) By death. 

(5) By retirement because of disability. 

Retirement Because of Old Age. 

How the retirement of the superannuated is to be effected has been 
explained in the first part of this discussion under the head of 
"Mathematical basis of the proposed plan." Besides section 1 of 
the bill, which contains the statement of the foundation of the pro- 
posed measure, sections 3, 4, 5, and 6 contain provisions regarding 
the retirement of the superannuated which will now be considered. 

131 



132 EETIEEMENT OF SUPERANNUATED CIVIL.-SEE.VICE EMPLOYEES. 

AGKS OF RETIREMENT ACCORDING TO SEVERITY OF OCCUPATION. 

Section 3 reads as follows: 

" Sec. 3. That the retirement age herein referred to shall be sixty -five years 
for group one, sixty-five years for group tvpo, and seventy years for group three. 
And the I'resident of the United States shall designate the branches of the 
service to be included in each group." 

While it is felt that the age of retirement for clerks generally 
shoul(i be 70 years, it was not thought just to consider all of them 
in one class together, since those engaged in the more arduous kinds 
of employment might naturally be expected to become superannuated 
earlier than others employed at lighter tasks. The powers of the 
mind ordinarily outlast those of the body, and an aged person 
engaged in mental work, whether as a judge of the Supreme Court, 
a Senator in Congress, oi a petty clerk in the executive depart- 
ments remains a useful member of society much longer than do those 
whose labors depend upon their physical activities. 

The employees coming within the scope of the bill whose duties 
make most severe demands upon their physical endurance are the 
railway postal clerks, A large part of their work is performed 
during the night in light railway cars on swiftly moving trains under 
considerable physical and mental strain. The employees whose phys- 
ical powers are taxed most heavily after the railway postal clerks are 
the letter carriers. Abroad in all kinds of weather and burdened 
with a heavy pack, their work is certainly more exhausting physically 
than that of the majority of Government clerks. With these facts 
in mind, the civil-service employees have been divided into three 
groups. In Group I are the railway postal clerks, for whom retire- 
ment is proposed at the age of 65. A clause in section 11 of the bill 
also provides that employees of Group I may receive the annuity at 
the age of 60 if they so desire. In Group II are letter carriers, for 
whom retirement is proposed at the age of 65. In Group III are all 
the other departmental clerks, and retirement is proposed for them at 
the age of 70. 

In view of the difference in the value of annuities for employees 
retiring at different ages, it was necessary to compute the cost of 
annuities for these three groups of employees separately. Their 
records should also be kept in three separate groups, so that the 
mortality and disability statistics based on them in years to come 
will tell a more accurate story than if the history of the three groups 
is consolidated. 

MODES OF PROCEDURE FOE RETIREMENT. 

The action to be taken on the arrival of each employee at the age 
of retirement, whatever that age may be, in order to put into effect 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 133 

the provisions of the plan, is stated in section 4 of the bill, which 
reads as follows: 

Sec. 4. That if within thirty days before the arrival of an employee at the 
age of retirement, the head of the department or independent office in which 
he is employed certifies to the Secretary of the Treasury that by reason of his 
efficiency and his willingness to remain in the service the continuance of such 
employee therein would be advantageous to the public service, such employee 
may be retained for a term not exceeding two years; and at the end of the 
two years he may by similar certification be continued for an additional term of 
two years, and so on. Upon the failure of the head of the department or 
independent office to make the above-described certificate it shall be the duty 
of the Secretary of the Treasury to place such employee upon the retired list 
in accordance with the provisions of this act. 

This provision shows that the plan does not contemplate the arbi- 
trary retirement of all who reach the age of 70. It would, in many 
cases, be a real loss to the nation to force into retirement men engaged 
in work which they are still able to perform efficiently and which is 
of benefit to the public. This would be particularly true of scien- 
tists and economists engaged in research work. This provision 
allows them to continue their work beyond the age of 70 if they de- 
sire to do so and their services are recognized as valuable. The pro- 
vision is also of benefit to the efficient clerk entering the service late 
in life who would prefer to remain at work a few years beyond the 
age of 70, because he would then be able to retire on a much larger 
annuity than if he retired at the age of 70, since the annuity not 
only costs less at the older age, but each year that he remains gives 
him a larger retirement fund from his savings, plus interest. With 
the exception of persons who come into the departments by prefer- 
ment on account of military service, it is generally true, of course, 
that clerks who enter late in life are admitted by reason of their 
special qualifications in some particular work, and their continuance 
in the service past the ordinary age of retirement is not open to the 
usual objections on the score of advanced age. 

It is highly desirable, however, that there be a fixed age of retire- 
ment at which the routine clerk can, without injustice, be forced out 
of the service. The history of superannuation measures in England 
shows how important the officials of the civil service in that country 
have considered a compulsory age of retirement. The Ridley Com- 
mission, in England, in 1888, recommended 65 as the proper age, and 
then said : 

There should be no exception to this rule, except in the case of certain 
scheduled offices, in which the officer, if asked by the Government to do so, might 
be allowed to extend his services for a further period, never exceeding five 
years.^ 

1 See Second Report of Commission on Civil Establisliments. 1888. p. XXIII. 



134 EETTREMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

A Treasury official who was most vigorous in urging the necessity 
for compulsory retirement at a given age was Mr. Frank Mowatt. 
It was about the only reform that he had advocated before the Ridley 
Commission, being adverse in general to making changes in the exist- 
ing system. So convinced, however, was he of the wisdom of a 
compulsory retirement age that he would not even admit that the re- 
tention in office of exceptional men after they had reached that age 
was advisable. An interesting sequel to this statement is the fact that 
when the Boer War broke out and he, as Sir Francis Mowatt, was 
serving as Secretary to the Treasury, it was not considered wise at 
that critical time to make a change in Treasury officials, and he was 
accordingly retained for a year beyond the compulsory retirement 
age by special order in council. 

It was not until November 29, 1898, that the recommendation of 
the Ridley Commission and other commissions as to the compulsory 
retirement age was put into effect by an order in council. The power 
of retention, in special circumstances, for a period not exceeding 
five years, is lodged with the treasury, but when the superannuation 
act of 1909 was passed as a measure intended to modify and reform 
the civil pension system a clause was included in the act providing for 
reduction of the pension in case of such retention, which was evidently 
intended as a discouragement to the exercise of such power. The case 
of Sir Francis Mowatt shows, however, that the law should make the 
retention of exceptional employees at least possible, though difficult 
and unusual. 

It has been the policy of the Government to show preference for 
war veterans in the matter of appointment to office. A similar 
preference in the matter of their retirement from office would un- 
doubtedly be urged were a retirement plan to be adopted. In the 
last annual report (1910) of the Hon. M. O. Chance, former Auditor 
for the Post Office Department, occurs the following paragraph, 
which is well worthy of consideration in connection with this bill : 

For these reasons cliiefly I most heartily indorse the plan embodied in 
Senate bill 1944. It should be modified, however, in my judgment, so as to 
show war veterans a similar preference in the matter of retirement to that 
shown in appointment. Of the 711 employees of this office, 48 — 6.75 per cent — are 
veterans of the Civil War. Some have been in the civil service many years, 
while others have been appointed quite recently. It would seem desirable in 
cases where they have been in the civil service too short a period of time to 
be entitled under the terms of the bill to receive an adequate annuity from 
the Government, that the bill should be amended so as to give them a retiring 
allowance of not less than half pay. I recommend, therefore, that the Treasury 
Department urge the passage of the bill referred to, with the following amend- 
ment: 

On page 11, line 21, after the word " act," insert the following : 
Provided, however, That such annuity to any employee who served ninety 
days or more in the military or naval service of the United States during the 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 135 

late Civil War, or sixty days in the war with Mexico, and who has been honor- 
ably discharged therefrom, shall, including the annuity herein provided for 
by his own contributions from his salary, be not less than fifty per centum of 
his average annual compensation during his entire period of employment in 
the civil service. 

CONTINUANCE IN SERVICE AFTER EETIEEMENT AGE. 

For the benefit of those employees retained in the service after the 
age of retirement section 5 was introduced into the bill. It reads as 
follows : 

Sec 5. That if an employee is retained in the service after reaching the re- 
tirement age a deduction of ten per centum of his monthly salary, pay, or com- 
pensation shall thereafter be made while he remains in the service, and the same 
shall be treated as other deductions under section two of this act. 

The purpose of deducting 10 per cent from the salaries of persons 
who remain in the service after reaching the age of retirement is to 
increase as rapidly as possible the amount to their credit. Those 
who desire to remain after the age of retirement will, in most cases, 
be persons who entered the service late in life, and who, therefore, 
have not had time to accumulate a sum sufficient to buy them a de- 
sirable annuity. Five years longer in the service, with a 10 per cent 
deduction from salary during that period, would almost double the 
annuity the employee's money would buy (see p. 127). 

VARIOUS OPTIONS ON EETIEEMENT. 

Section 6 details the various options which the employee has of 
withdrawing his savings on retirement and reads as follows : 

Sec 6. That upon retiring at the age of retirement or thereafter the employee 
may withdraw his savings, with the increment of interest as herein provided, 
under one of the following options ; and, if Option I or Option II is selected, re- 
ceive in addition thereto such annuity, if any, as may be apportioned by the 
Secretary of the Treasury out of accumulations in excess of three and one-half 
per centum guaranteed by the provisions of this act, and such apportionment 
by the Secretary of the Treasury shall be conclusive: 

Option I. In an annuity payable quarterly throughout life. 

Option II. In an annuity payable quarterly throughout life, with the pro- 
vision that in case of the death of the annuitant before he has received in an- 
nuities the amount of his savings, plus the interest credited thereon, the balance 
shaU be paid to his legal heirs. In determining at his death the amount due to 
his heirs no account shall be taken of the annuities paid to him by the United 
States under section eleven of this act. 

Option III. In one sum. 

If after retirement the employee does not avail himself of one of the foregoing 
options, but leaves the amount due him on deposit, interest at the rate of two 
per centum per annum on the original sum so left on deposit on retirement shall 
be credited thereto for a period not exceeding twenty years, and if not then 
withdrawn the money so left on deposit, without interest, shall be covered into 
the Treasury as a miscellaneous receipt. 



136 RETIREMENT OP SUPEBAlirNUATED CIVIL-SERVICE EMPLOYEES. 

The advantages of these various options have been discussed on 
page 108, under the caption of " Two forms of annuities." The 
second part of the section makes provision for the disposal of savings 
not withdrawn by the employee on retirement. 

Retirement Because of Resignation, Dismissal, or Death. 

Section 7 of the bill contains the provisions, under the plan, for 
the return of an employee's savings, in case of his separation from 
the service before reaching the age of retirement, by reason of his 
resignation, dismissal, or death. It reads as follows : 

P^c. 7. That upon absolute separation from the civil service prior to the re- 
tirement age, and only upon such separation, the employee may withdraw his 
savings in one sum, and in case he has been in such service not less than six 
years he may also receive in addition thereto interest on his savings at the 
rate of three and one-half per centum per annum, compounded annually ; or, in 
case his savings amount to at least one thousand dollars he may withdraw the 
same under any one of the foregoing options, computed on the basis of his 
attained age. In case of the death of an employee while in the service the 
amount of his savings, together with the interest credited thereon, shall be 
paid to his legal heirs. 

In Case of Resignation. 

Under the proposed savings plan the employee who leaves the serv- 
ice to engage in some other occupation will not go penniless to his 
new work. If nothing else, he will have at least the amount of his 
enforced savings while in the Government service. This will be 
returned to him, since the Government claims no right to compel him 
to lay it aside except with the understanding that it shall be paid 
back to him on his absolute separation from the service, whether at 
the age of retirement or earlier. 

interest allowed on savings after six years' service. 

The question whether interest should be paid on these savings in 
case the employee leaves the service before reaching the age of retire- 
ment is one that has received considerable attention. Some are in- 
clined to believe that no interest should be paid on the savings of 
those employees who remain only a short time in the service, since 
those who do so usually regard the service as merely a means to an 
end. With this class of employees in mind, section 7 was made to 
provide that interest on savings should only be allowed an employee 
who leaves the service through resignation or dismissal after he has 
been in the service at least six years. The loss of interest to the indi- 
vidual who has been in the service less than six years is small in every 
case — not sufficient to affect the rate of resignations one way or the 
other. A $1,200 employee aged 25 on entrance into the service would 
have $314.74 to his credit after being in the service five years, of 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 137 

which $288 would represent his own contributions. If he resigned 
after five years, he would forfeit the difference between $314.74 and 
$288, or $26.74, the amount of interest contributed by the Govern- 
ment. The sum of $26.74 is certainly not sufficient to hold in the 
service an employee who has reasons for wishing to resign. 

On the other hand, the forfeiture of that small amount of interest 
would amount in the aggregate to a considerable sum returned to the 
Government, which would ultimately be divided among the clerks 
that remained in the service and took annuities on retirement, and 
thus be an additional safeguard in guaranteeing the interest rate. 

It has been suggested that interest might be withheld in all cases 
except where the employee has been in the service for an extended 
period, such as 20 years or more. It is said that such a forfeiture of 
interest might have a tendency to hold employees in office longer than 
if there were no penalty attached to resigning. The practical objec- 
tion to such a proposal is that the interest after 19 years amounts to 
a very considerable sum. The employee mentioned above as forfeit- 
ing $26.74, if he left after five years, would forfeit $449 of the $1,533 
to his credit if he left at the end of 19 years. The result would be 
a mild form of peonage, at best a kind of coercion difficult to defend 
in the case of enforced savings. 

ANNUITY ON SEPARATION FROM SERVICE BEFORE AGE OF RETIREMENT IN CASE 
SAVINGS AMOUNT TO $1,000. 

The clause providing that an employee, on retiring from the service 
before reaching the age of retirement, may, if he so desires, withdraw 
his savings in the form of an annuity, computed on the basis of his 
attained age for such an amount as his savings will buy, seems to call 
for no particular comment. Table XXII, on page 126, shows the 
amount of cash accumulations to an employee's credit at the end of 
various years of service and the life annuity that may be granted him 
on resignation in lieu of cash. 

In Case of Dismissal. 

The employee who is dismissed from service under this plan would 
have to his credit the amount of his savings, and in case he has been 
in the service six years he would also have the interest on his savings. 
To dismiss him under those circumstances would be less difficult than 
if he were known to be without funds. The efficiency of the service 
is thus protected. 

superiority of this plan over civil PENSION illustrated in case of dismissal. 

The general wisdom of a savings plan, from the viewpoint of the 
service, in contrast to a civil pension of any description, appears in 
the provisions of section 7 as applied to those whose separation from 



138 KETIKEMENT OF SUPEBANNtJATED CIVIL-SERVICE EMPLOYEES. 

the service comes through dismissal. Everyone familiar with the 
executive departments of the Government knows that not all the 
inefficient clerks are found among the superannuated. While the rules 
enforced by the Civil Service Commission are effective in preventing 
the entrance of incompetents into the service, they are not so success- 
ful in maintaining efficiency among those who secure entrance, a 
fact set forth in their reports: 

The conditions which have forced large business institutions to adopt pension 
systems exist to an inteuser degree in the public service, partly due to the re- 
luctance of appointing officers in making removals and partly to the lack of a 
wise system for making promotions upon efficiency. Under the enforcement of 
sound promotion regulations reductions and dismissals would tend to reduce to 
a minimum the number of inefficient and incapacitated employees, because 
under such regulations there would be a constant weeding out and reduction to 
lower grades of this class of employees/ 

This reluctance of officers to make removals and the difficulty of 
doing so, even after they have definitely concluded to make the par- 
ticular removals, was strikinglj'^ brought out by Hon. E. F. Ware, 
Commissioner of Pensions, in testimony before the House Committee 
on Reform in the Civil Service on February 9, 1904. A leaf from 
the hearing of the committee on that occasion reads as follows : 

Mr. Smith. Have you any plan or theory as to the proper and humane way of 
disposing of the old people? 

Mr. Wake. No, sir. The reason I have not any plan is this : There was an old 
man in the bureau who was so thoroughly inefficient that I concluded to dismiss 
him. He was over 80 years of age, and I had the paper on my desk ready to 
issue when the next morning before the dismissal could take place he dropped 
dead, and it scared me. If I had issued the order for his dismissal, it might have 
been charged that I inhumanely murdered him. I have not been able to bring 
my courage up to the point of dismissing any of those very old people. I 
therefore say this : I think that the Government should fix an age at which they 
should leave the service. That is one way of handling this whole question. 
However, I do not believe that my views on this particular branch of the subject 
would be worthy of present consideration, for there are better ways. 

Mr. Lacey. Have you had occasion to think of this idea : Suppose that every 
man in your office had to be reappointed at a fixed period, five, seven, or eight 
years, or some other fixed period, and it was optional to appoint or not, do you 
not tliink it would enable you to weed out the least efficient in that way from time 
to time when the periodical time of appointment arrived, requiring also that 
every man who is appointed shall undergo an examination, not a civil-service 
examination, but a departmental examination, along the line of work at which 
he has been employed? Did you ever investigate or think out the question 
whether that would give you relief, so as to be constantly getting new blood 
into the office? 

Mr. Wake. I have never had that point presented to me, but there is in my 
bureau a class of appointees called " special examiners," 150 in number, whose 
services expire every year, on the 1st of July, and unless they are reappointed 
by the Pension Commissioner they are no longer connected with the service. 

* See Twentieth Report of Civil Service Commission, p. 155. 



RETTEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 139 

It has been my experience that all of the poor members of that class (called 
special examiners) knowing their inferiority, begin during June to work any 
political influence on me which they have, and the poorer the clerk the greater 
the influence, so that by the 1st of July I am completely overwhelmed with 
demands to keep such persons in the service. 

Last year I got rid of three men, and I had more trouble in getting rid of 
those three men than I had from other sources in the entire bureau during 
a month's work, and the job was so great that I have decided not to under- 
take it a second time, because the influence that was brought to bear upon me 
only began with me. Some of it was carried to the department. I was haled up 
to the department to answer some of the demands of the persons interested in 
the reappointments and the President himself was even applied to. I would 
not feel that it was any protection to a bureau to have the right you suggest, 
because it is as easy to dismiss as it is to stand the pressure that comes from 
keeping bad clerks in. I believe that answers the question. 

The same points were brought out a few days later, February 12, 
1904, by Adjt. Gen. F. C. Ainsworth, then Chief of the Record and 
Pension Office, War Department, in his testimony before the same 
committee. Among other things, he said : 

It goes without saying that whenever an employee of the civil establishment, 
by reason of age or any other cause, becomes unable to render a reasonable 
return in service for the salary paid him it is the plain duty of his bureau 
chief and the head of his department to cause his reduction in grade or his 
discharge from service. But it is difficult to bring one's self to recommend or 
order the reduction or dismissal, in his old age, of an employee who has ren- 
dered many years of faithful and efficient service, who probably has no means 
of support other than his salary, and with whom no fault can be found other 
than that he has become worn out in the public service. In such a case senti- 
mental consideration usually prevails, the call of duty is neglected, and the old 
employee retains his position, virtually as a pensioner, while the duties which 
he should perform are neglected or are discharged by another, often at an 
inadequate compensation. 

In addition to all this, whenever an attempt is made to reduce or discharge 
an employee who has become useless or unfit for service by reason of age 
or any other cause, it is almost invariably the case that more or less political 
and social pressure is brought to bear in his behalf upon the chief of his 
bureau and the head of the department. The exercise of such influence is 
espe*ially to be looked for in the cases of those, young or old, whose record of 
service is indifferent or bad. As a rule, to which there are but few excep- 
tions, the value of an employee bears an inverse ratio to the political and 
social support which he brings to bear in his own interest. It is at best difficult 
to bring about the discharge of a worthless, inefficient, unfaithful, or insub- 
ordinate employee, and it is equally difficult after his discharge to resist the 
importunities of his friends and supporters for his reinstatement. 

Under the proposed plan, the retention of inefficient clerks out of 
humane considerations or because of their political prestige would be 
far less imperative than it now is. On the other hand, the tendency 
of a civil pension would be just the reverse, since the chief who dis- 
missed an incompetent clerk would know that he not only deprived 
him of the salary of which he probably had most pressing need, but 



140 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

that he also deprived him of a kind of intangible right to the pension 
that would ultimately be his if he were allowed to remain in the 
service until reacliing the age at which it Avould be granted, and 
which he had already partly earned. (See Chap. I, p. 54, discussion 
under head, Civil pension is demoralizing to the service.) 

In Case of Death. 

The savings plan would certainly not be condemned in the home of 
any employee removed by death from the service. The last sentence 
in section 7 provides that interest on the employee's savings shall be 
paid in case of his removal from the service by death, regardless of 
the length of time he has been in office. 

In Case of Disability. 

The last retirement bill introduced in the first session of the 
Sixtieth Congress (H. R. 21261), known as the first " Gillett bill," 
contained no provision for separation from the service in case of 
disability. This omission seemed at that time to be disapproved by 
the employees of the Post Office Department. At the annual conven- 
tion of the United States Association of Post-Office Clerks, held in 
Birmingham, Ala., September 7 to 11, 1908, the president of the 
association strongly opposed this bill because of the elimination of 
the disability provision contained in the so-called Keep bill, the first 
of the series introduced covering this plan of retirement and known 
officially as PI. R. 179G9. Since then, the association seems to have 
changed its attitude toward the disability question, for it is under- 
stood to oppose the second "Gillett bill" (II. R. 22013), the one last 
favorably reported, on the ground that the disability provision is 
unsatisfactory. This attitude seems to be decidedly inconsistent in 
view of the fact that the disability provision in this last bill is the 
most liberal of any yet proposed. Opposition is understood to be 
based on the theory that the cost of disability should be paid for 
entirely by the Government instead of out of any fund created by 
the employees. In taking this position the members of the postal 
service have not seemed to realize that the passage of this last bill 
would enable them to get accident insurance at net cost, and that they 
would be benefited out of all proportion in comparison with the 
members of the other departments by participating in any mutual 
fund, since the number of accidents among members of the postal 
service is naturally much greater than among members of other 
branches of the service. If the criticism of inequity is raised it 
should be directed toward cutting down benefits to the members of 
the postal service. 



EETIEEMENT OP SUPERANNUATED CIVTL-SERVICE EMPLOYEES. 141 
DISABILITY PROVISION IN SO-CAT.LKD KEEP BILL. 

The disability provision found in section 6 of H. E. 179G9 provides 
that an employee who has served the Government for not less than 
20 years may retire on an annuity equal to 1^ per cent of the aggre- 
gate salary he has received, in case of disability "not duo to vicious 
habits or by reason of exigencies of service, but without fault or 
delinquency on his part, or on his own application after 40 years' 
service." 

NECESSITY OF DETEEMINING COST OF DISABILITY BENEFIT. 

While a disability clause is recognized as a desirable feature of any 
retirement bill, the aforesaid provision does not wholly meet the require- 
ments. The clause providing for retirement on the employee's own ap- 
plication after 40 years' service virtually means general retirement at 
the ages of 60 to 65 instead of 65 and 70, and would therefore ma- 
terially increase the cost to the Government for annuities for back 
services. Neither could any provision for retirement in case of dis- 
ability, however satisfactory in theory, be regarded as desirable in 
the absence of figures to show what such a provision would cost. 

DIFFICULTy OF DETERMINING COST OF DISABILITY BENICFIT. 

The first step necessary then in determining the feasibility of in- 
cluding in the retirement measure a provision for disability is to 
ascertain what such a provision would be likely to cost. The great 
difficulty in the way of estimating this cost is the fact that there is 
no satisfactory basis for such computation. No reliable tables of dis- 
ability based upon the experience of American lives have as yet been 
compiled. Several German tables have been prepared based on the 
experience of various industries, including the different branches of 
the German railways and including the employees in German coal 
mines, but none of these tables can suitably be used as the basis for 
the required estimate. While they have been compiled in a most 
scientific manner, it is generally recognized that they show too high 
a rate of invalidity to serve as a satisfactory basis for computing the 
cost of disability among ordinary American lives, such as civil-service 
employees. This is because, in the first place, they are all based on 
extra-hazardous occupations, and, in the second place, because dis- 
ability is made to include superannuation. The most superficial 
study of these tables — including even the most reliable ones — shows 
that disability has been generally confused with superannuation in 
the older ages, and the rates based on them are in consequence in- 
ordinately high. 



142 KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPL»OYEES. 
GERMAN DISABILITY EXPERIENCE BEST AVAILABLE. 

That the German tables show too high a rate of invalidity is recog- 
nized apparently by German actuaries, for J. Karup in a chapter on 
disability in his well-known work " Eef orm des Rechnungswesens der 
Gothaer Lebensversicherungsbank " calls attention to the fact that 
the disability experience of German railroad employees is not reliable, 
and recommends that observations made from 1868 to 1876 be disre- 
garded because " pensioning and invalidity were treated then as of 
equal significance." 

Overconservative, however, as we know they are, rates based on the 
German tables of disability are the most reliable that are available 
for computing the cost of a disability provision. The tables of 
Zimmermann, based on the experience of the various branches of the 
employees of German railways, have accordingly been used to esti- 
mate the cost of the disability benefit proposed in the Keep bill 
(H. R. 17969). These tables cover an experience extending over the 
years 1873 to 1887, and although they include three years, 1873 to 
1876, of the period, 1868 to 1876, quoted above by Karup as one when 
the superannuated were erroneously classed with the disabled, they 
are, nevertheless, generally recommended by Karup, Hamza, and 
other leading actuaries of Germany as the safest of available ex- 
periences, their fault being, indeed, an excess of safety rather than 
a lack of it.^ 

1 Recently, since the above text was written, tables which could be used for the calcu- 
lation of the cost of a disability feature for that class of the civil service retiring at age 
70 have been published, based upon the experience of the Knights of Maccabees. The 
experience upon the members of this fraternal order should approach more nearly upon 
that of the above-mentioned class of the civil service. From a cursory examination of 
the rates derived from this experience it is evident that the cost of disability benefits 
would show a considerable decrease from the cost obtained on the German experience 
which has been made the basis of these calculations. 



RETIREMENT OP SUPERANNUATED CIVIIr-SERVICE EMPLOYEES. 143 



Table XXIV. — Showing rates based on German disability experience to pro- 
vide an annuity of $100 {first payment immediate) to age indicated upon 
occurrence of total and permanent disability} 



Present age. 



Retirement age. 



65 



60 



20 years.. 

21 years.. 

22 years.. 

23 years. . 

24 years.. 

25 years.. 

26 years.. 

27 years.. 

28 years.. 

29 years. . 

30 years.. 

31 years.. 

32 years.. 

33 years.. 

34 years.. 

35 years. 

36 years.. 

37 years.. 

38 years.. 

39 years.. 

40 years.. 

41 years.. 

42 years.. 

43 years.. 

44 years.. 

45 years. . 

46 years. . 

47 years.. 

48 years.. 

49 years- 

50 years. . 

51 years.. 

52 years.. 

53 years.. 

54 years.. 

55 years.. 

56 years.. 

57 years.. 

58 years.. 

59 years.. 

60 years.. 

61 years.. 

62 years.. 

63 years.. 

64 years.. 

65 years.. 

66 years.. 

67 years.. 

68 years.. 

69 years. . 



$0.41 



SO. 41 

.58 
.76 
.95 
1.15 
1.36 
1. 50 
1.84 
2.11 
2.40 
2.71 
3.05 
3.42 
3.81 
4.22 
4.64 
5. 08 
5. .53 
6.00 
6.48 
6. 98 
7. .52 
8.12 
8.70 
9. .54 
10. Zl 
H..30 

12. io 

13. .53 
14.84 
16. 29 
17. 70 
19. 19 
20.46 
2] . 60 
22. 00 
23. 44 
24.09 
24. 55 
24.81 
24.88 
22.99 
19. 92 
15. .33 

8.94 



$0.59 
.84 
1.12 
1.42 
1.76 
2.12 
2.54 
3.04 
3. GO 
4.16 
4.68 
5.11 
5.52 
5.88 
6.28 
6.72 
7.21 
7.77 
8. .36 
9.00 
9.69 
10. 22 
10.70 
11.13 
11.60 
12.14 
12. 91 
13.72 
14. 62 
16. 55 
17.07 
17. 42 
17. 71 
17.96 
18.18 
18.40 
16.89 
14.65 
11.36 
6.62 



1 These rates were computed by Mr. Benedict D. Flynn, assistant actuary, Tlie Trav- 
elers Insurance Company, Hartford, Conn., in January, 1909. 

ESTIMATED COST OF DISABILITY PROVISION IN SO-CALLED KEEP BILL. 

The disability benefit proposed in the Keep bill is arranged on a 
basis similar to that used in calculating retirements; that is, retire- 
ment by reason of total disability and after not less than 20 years' 
service on 1^ per cent of the employee's total compensation during 
the service prior to the taking effect of this act. That would mean 
a disability benefit of 30 per cent of pay in the case of the employee 
who had been in the service 20 years, 45 per cent of pay in the case 
of the employee who had been in the service 30 years, and so on. 
While this arrangement might, in many cases, be inadequate, it could 
be recommended for the Government as a safe and conservative 
beginning. 



144 RETIEEMElSrT OF SUPERANNUATED CIVIL- SBEVICE EMPLOYEES. 

The erst the first year of such a provision based on the foregoing 
rates, to run from the date of disability to the respective ages of 
retirement, is shown in the following table to be $1,157,298. 

Table XXV, — Shotving cost of MsaMUty provision in Keep Mil, J)Ut limited to 
run from date of disaMlity to age of retirement. 



Age, 
years. 


1 per cent of 
salary of all 
general em- 
ployees (who 
have been in 
service at least 
20 years) mul- 
tiplied by 
number of 
years of service. 
(See note.) 


Rate 
per 

$100 
of an- 
nuity. 


Total 
pre- 
mium, 
first 

year. 


1 per cent of 

salary of all 
letter carriers 
(who have been 

in service at 
least 20 years) 
multiplied by 

number of 
years of service. 

(See note.) 


Rate 
per 
$100 
of an- 
nuity. 


Total 
pre- 
mium, 
first 

year. 


1 per cent of 
salary of all 

railway postal 
clerks (who 
have been int 

service at leas 

20 years) mul- 
tiplied by 
number of 

years of service. 
(See note.) 


Rate 
per 

$100 
of an- 
nuity. 


Total 
pre- 
mium, 
first 
year. 


Total 


(a) 


(b) 


(c) 
$625, 762 


(d) 


(e) 


(f) 
$92, 279 


(g) 


(h) 


(i) 
853, 491 


33 


$1,304.00 
2, 684. 00 
5, 425. 00 
9, 144. 40 
16, 924. 60 
28, 165. 40 
34,351.60 
43,788.80 
61, 082. 60 
63,738.80 
72, 709. 20 
76,344.60 
90, 483. 80 
104,656.40 
115,537.40 
124, 138. 20 
125.606.80 
135,243. 60 
101,806.40 
. 115, 563. 00 
108, 961. 00 
106, 520. 00 
102, 238. 20 
125, 021. 20 
111,507.80 
107,263.60 
114, 996. 80 
129, 945. 60 
121,782.00 
155, 409. 60 
151,782.40 
159, 050. 60 
152, 981. 80 
132, 034. 20 
136,893.20 
98, 689. 40 
96, 363. 80 


$2.39 

2.76 

3.12 

3.51 

3.89 

4.25 

4.62 

4.98 

5.33 

5.66 

5.98 

6.27 

6.57 

7.94 

8.82 

10.17 

11.01 

12.39 

13.01 

13.80 

14.55 

15.21 

15.42 

15.93 

17.29 

18.61 

21.39 

24.72 

28.65 

31.17 

33.02 

33.56 

32.21 

29.15 

25.94 

20.95 

12.68 


31 

74 

169 

321 

658 
1,197 
1,587 
2,181 
3,256 
3,608 
4,348 
4,787 
5,945 
8,310 
10, 190 
12,625 
13,829 
16,757 
13,245 
15,948 
15,854 
16,202 
15, 765 
19, 916 
19,280 
19, 962 
24,598 
32, 123 
34,891 
48, 441 
50,118 
53,378 
49, 276 
38, 488 
35, 510 
20, 675 
12, 219 














34 


$762. 60 
912. 00 
839. 00 


$4.22 

4.64 

5.08 

6.53 

6.00 

6.48 

6.98 

7.52 

8.12 

8.79 

9.54 

10.37 

11.30 

12.35 

13.53 

14.84 

16.29 

17.79 

19.19 

20.46 

21.60 

22.60 

23.44 

24.09 

24.55 

24.81 

24.88 

22.99 

19.92 

15.33 

8.94 


32 
42 
43 

'"'iss' 

238 
472 
817 
1,214 
1,863 
2,432 
2,672 
3,466 
4,830 
4,319 
4,704 
5,427 
4,719 
5,366 
5,029 
5,243 
4,972 
5,154 
4,324 
4,006 
4,273 
4,468 
4,666 
3,334 
2,566 
1,430 








35 








30 

37 


$400. 00 

894. 00 

840. 00 

4, 132. 00 

6, 454. 00 

6,708.00 

11, 494. 00 

14, 080. 00 

11,248.00 

22,836.00 

23, 041. 00 

22,326.20 

21,802.00 

22, 798. 00 

25,542.00 

21,311.00 

23, 105. 20 

23, 928. 40 

20, 802. 20 

17, 148. 00 

21,330.00 

15, 034. 00 

14,597.60 

15, 180. 00 


$7.21 
7.77 
8.36 
9.00 
9.69 
10.22 
10.70 
11.13 
11.60 
12.14 
12.91 
13.72 
14.62 
16.55 
17.07 
17.42 
17.71 
17.96 
18.18 
18.40 
16.89 
14.65 
11.36 
6.62 


29 
09 


38 

39 

40 

41 

42 

43 

44 

45 

46 

47 

48 

49 

50 

51 

52 

53 

54 

55 

56 

57 

58 

59 

60 

61 

62 

63 

64 

65 


2,636.00 
3, 666. 00 
6, 761. 80 
10,864.80 
14,951.00 
21, 193. 20 
25, 491. 00 
25,762.80 
30, 670. 00 
39, 113. 00 
31, 925. CO 
31, 699. 00 
33,315.60 
26, 529. 20 
27,964.40 
24, 579. 00 
24,275.40 
21,999.40 
21, 990. 20 
17,949.00 
16,317.00 
17, 222. 00 
17, 958. 40 
20,295.80 
16, 737. 00 
16,737.40 
15,992.00 


70 
371 
628 
686 
1,230 
1,667 
1,305 
2,772 
2,975 
3,063 
3,187 
3,773 
4,360 
3,712 
4,092 
4.297 
3.7i2 
3, 1.'5 
3, 603 
2,202 
1,658 
1,0C5 
































66 




























68 

69 

































92, 279 



Amount required to provide all general employees who have been in the service 
not less than 20 years a disability allowance equal to 1 per cent of salary 
for each year of service, to run from date of disability to age 70 5625, 762 

Amount required to provide all letter carriers who have been In the service 
not less than 20 years a disability allowance equal to 1 per cent of salary 
for each year of service, to run from date of disability to age 65 

Amount required to provide all railway postal clerks who have been in the 
service not less than 20 years a disability allowance equal to 1 per cent of 
salary for each year of service, to run from date of disability to age 60 53, 491 

771, 532 
Amount required to provide all employees who have been in the service not 
less than 20 years disability allowances equal to 1.5 per cent of salary for 
each year of service, to run from date of disability to ages stated above, 
according to occupation ($771,5.32X1.5) 1,157,298 

Note. — The amount $152,981.80, opposite 65 years, in column (a) of the above table, 
is the sum of all annuities of persons who have been in the service 20 years or more, 
aa shown in the last column of illustrative Table XXIX beginning with tbe item of 
$5,448 (p. 16.3). Other amounts in columns (a), (d), and (g) are the sums of annuities 
of employees of various ages and classes who have been in the service 20 years or more. 



EETIEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 145 
ONE-TEAR TERM RATES USED IN CALCULATION. 

The rates that were used in calculating these premiums are one-year 
term rates based on the German disability experience to provide an 
annuity of $100, first payment immediate, upon the occurrence of 
total and permanent disability and continuing to the age of retire- 
ment. The life annuity table used in the calculation was based upon 
the American Experience Table of Mortality. As the expectation of 
life shown by that table is greater than the fact in the case of perma- 
nently disabled persons, and as it is well known that the life of a 
person totally disabled — particularly in the younger ages — is not so 
good as that of the normal person, it follows that annuities based on 
the American Experience Table of Mortality will give higher values 
than necessary. It will be seen, therefore, that in every way the dis- 
ability rates applied to the various groups of civil-service employees 
at present ages for present salaries for estimating the total cost of a 
disability provision in connection with the retirement plan were more 
than adequate and conservative. The one-year term rates used in the 
calculations are open to objection on one score. The cost of the dis- 
ability provision on the one-year term basis would undoubtedly 
increase for a few years. To use level premium rates, however, for 
the calculation of the disability cost, especially with the very inade- 
quate data as to the rate of disability among the civil employees, 
would be complicated and unsatisfactory. The better plan would be 
to employ one-year term rates based on the German disability experi- 
ence for the first few years until the experience of the enormous civil- 
service organization could furnish data for determining the cost of its 
own disability benefits. 

HOW COST OF DISABILITY PROVISION CAN BE MET. 

The cost of such a disability provision being thus approximately 
ascertained, the important question of how this cost can be met re- 
mains for consideration. At the hearings held in 1908, the suggestion 
was made that annuities for services rendered prior to the adoption 
of the plan might be paid out of deductions from the salaries of new 
entrants and deductions from salary increases of those promoted, 
after the plan followed by the French Government.^ The suggestion 
was embodied in sections 6, 7, and 9 of H. R. 21261, as a substitute 
for the provision in the two preceding bills that the annuities for 
these services be paid out of appropriations made by the Govern- 
ment. Since then, the House committee, by reporting favorably 
H. R. 22013, has receded from this position, and returned to the 
original plan of providing that annuities for back services be paid 

1 See Hearings before the Committee on Reform in the Civil Service, House of Repre- 
sentatives, Retirement Fund for Superannuated Employees in the Civil Service, p. 81. 

74196°— S. Doc. 745, 61-3 10 



146 RETIEEMENT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

by the Government, with the limitation, however, that they be re- 
stricted to $600 in each case. Since the other suggestion meant a 
tax on efficiency and was unfair to the younger employees, it was 
wisely abandoned, but it is proper to state here that, if the Govern- 
ment assumes the payment of annuities for back services, the fund 
created by deductions from salaries of new entrants and the salaries 
of employees receiving promotions might justly and consistently be 
applied to pay the cost of disability benefits, since all employees, 
both old and young, would have a chance to participate in the benefits. 
It would mean simply that Government employees would be required 
to carry accident insurance, which would be furnished them at cost, 
without the loading for expense necessary in the case of insurance 
companies. 

The sum that will be available through deductions from entrance 
and promotion salaries has been estimated by Maj. Fred Brackett of 
the Treasury Department as approximately $1,412,329 a year. In 
deciding, therefore, how the cost of putting the plan into operation 
shall be met Congress will be settling not one question but two, since 
the fate of a disability clause would seem to depend largely on this 
decision. Maj. Brackett's computation is as follows : 

There is an average of 8,082 deaths, resignations, and removals per year, and 
I have allowed an equal number of new appointments at $720 each, from which 
we receive $60 each, or one-twelfth of the whole amount. This produces 
$484,920 per annum, but as probably 5 per cent of the original appointments 
would be of $900 grade, we must add $6,060, or 404 by 15, which would give us 
$490,981, from appointments. From promotions we should receive an average 
of $120, less 5 per cent for appointments to vacated grades, which might not 
involve promotions. Each promotion ought to average $114, as follows : 

$720 to $840 $120 

$840 to $900 60 

$900 to $1,000 100 

$1,000 to $1,200 200 

Total 480 

25 per cent (assessment) on $480 is $120. $120 less 5 per cent = ($6) $114, 
$114X8,082=$921,348. $490,981+$921,34S=$1,412,329, the amount of annual 
proceeds from new entrants' and promotion salaries.* 

DESIEABILITY OF MORE LIBERAL DISABILITY BENEFITS, 

It would be very desirable, both for the employee and for the 
service, if such a course were practicable, to provide for a more 
liberal disability benefit than that proposed in the Keep bill. The 
ideal arrangement would undoubtedly be to have the disability bene- 
fits accrue to the employee regardless of his term of service, since 
disablement may occur at any period and the need be much greater 

1 See Hearings before the Committee on Reform in the Civil Service, House of Repre- 
eentatives (1908) Retirement Fund for Superannuated Employees In the Civil Service, 
p. 130, 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 147 

in the case of the employee who has been in the service only one year 
than in the case of the employee who has been in the service 20 years 
or more. Disability benefits limited, as in the above-mentioned bill, 
to those who have served at least 20 years would be of little value to 
the letter carriers, and of practically no value to the railway mail 
service. A provision to be really adequate would have to provide 
about 50 per cent of the pay received at the time disability was 
incurred. It would include the payment of benefits for permanent 
disability due to either accidents or illness, accident benefits to be 
payable after any length of service, illness benefits to be payable only 
when the employee has been in the service a stated number of years, 
probably ten. While such a provision has much to recommend it, 
however, it can not, of course, be wisely adopted in ignorance of the 
cost. In view of the absence of reliable disability statistics, it is 
impossible to state the cost accurately. 

ESTIMATED COST OF LIBERAL DISABILITY BENEFIT. 

A computation based on the disability tables compiled by Zim- 
mermann gives $6,737,263 the first year as the cost of a disability pro- 
vision, such as outlined above. While this figure is so high as to be 
ridiculous — and emphasizes again the very great safety of the esti- 
mate of $1,157,298 (based on the same tables) as the cost of the 
disability provision in the so-called Keep bill — still, in the absence of 
all other data, this figure makes the price of a liberal benefit prohib- 
itive at the present time. Had the estimate been about $2,000,000 a 
year instead of $5,737,263, then the above-mentioned disability clause 
might safely have been included in the bill, and the provisions under 
it so graduated as to bring the cost below the amount of $1,412,329 
a; year, the amount of the fund available through deductions from 
entrance and promotion salaries, but with the estimate of cost, even 
though that estimate is known to be grossly exaggerated, over three 
times as great as the available fund, the only safe conclusion is that 
such a clause is unwise until such time as reliable statistics of disa- 
bility on lives of civil-service employees are available as a basis for 
computation. If a limited disability provision such as that proposed 
in the Keep bill be granted, and then the disability experience of 
United States civil-service employees in the various groups be care- 
fully kept for a few years following the adoption of the proposed 
plan, valuable data may be obtained from which American tables 
of disability can be compiled and the cost of a liberal disability 
feature in connection with the retirement plan accurately computed. 
An increase of disability benefits could then be authorized by 
Congress, 



148 KETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table XXVI. — Showing cost the first year of disaMlity provision equal to one- 
half pay, to run from date of disaMlity to age of retirement. 



Total 
salaries of 

general 
employees. 



Total 

premium 

first 

year. 



Total 
salaries of 

letter 
carriers 
and rural 
carriers. 



Rate. 



Total 

premium, 

first 

year. 



Total 
salaries 

of 
railway 

postal 
clerks. 



Rate. 



Total. 



14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 j'ears 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 

46 years 

47 years 

48 years 

49 years 

50 years 

51 years 

52 years 

53 years 

54 years 

55 years 

66 years 

57 years 

58 years 

59 years 

60 years 

61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 

68 years 

69 years 



86,570,497 



53,824,944 



88,400 
33, 000 
97, 440 
153,220 
346,860 
676, 200 
948, 760 
293,680 
557, 860 
890, 060 
146, 760 
,309,500 
610,480 
788, 580 
807, 560 
944, 160 
143, 980 
023,260 
060. 160 
039, 080 
070, 600 
863,200 
956,680 
925, 900 
916, 260 
667, 440 
515, 260 
256, 820 
218, 400 
017, 100 
987, 880 
951,000 
011,480 
975. 200 
844, 920 
710, 540 
642, 360 
276, 080 
275, 740 
161,000 
050, 240 
998, 140 
020, 280 
979, 520 
931,220 
894, 160 
951.600 
878, 460 
078, 500 
007, 220 
935, 620 
926, 840 
730, 580 
710,120 
532, 180 
489, 369 



80.41 

.41 

.41 

.41 

.41 

.41 

.41 

.46 

.52 

.59 

.66 

.74 

.83 

.94 

1.08 

1.25 

1.46 

1.72 

2.04 

2.39 

2.76 

3.12 

3.51 

3.89 

4.25 

4.62 

4.98 

5.33 

5.66 

5.98 

6.27 

6.57 

7.94 

8.82 

10.17 

11.01 

12.39 

13.01 

13.80 

14. 55 

15.21 

15.42 

15.93 

17.29 

18.61 

21.39 

24.72 

28.65 

31.17 

33.02 

33.56 

32.21 

29.15 

25.94 

20.95 

12.68 



34 

135 

399 

628 

1,422 

2,772 

3,890 

5,951 

8,101 

11,151 

14, 169 

17,090 

21,667 

26, 213 

30, 322 

36,802 

45,902 

52,000 

62,427 

72, 634 

84,749 

89, 332 

103, 779 

113,818 

123, 941 

123, 236 

125,260 

120,289 

125, 561 

120, 623 

124. 640 

128, 181 

159,712 

174, 213 

187, 628 

188, 330 

203, 488 

166, 018 

176, 052 

168, 925 

159,741 

153,913 

162, 531 

169, 359 

173,300 

191 ; 261 

235, 236 

251,679 

336, 168 

332, 584 

313, 994 

298, 535 

212, 964 

184, 205 

111,492 

62, 051 



$162, 180 

343, 080 

522, 360 

723, 740 

9.59, 900 

1,175,800 

1,257,640 

1,353,260 

1.508,860 

i; 664, 780 

1,837,260 

1,856,440 

1,955,360 

1,956,080 

1,950,240 

2,028,500 

2, 002, 580 

1,932,320 

1, 908, 540 

2,032,100 

1,913.. 300 

1,800,280 

1,805,040 

1, 462, 900 

1, 602, 660 

1, 352, 460 

1,262,980 

1, 299, 300 

1, 312, 580 

1,267,680 

1,095,440 

953, 400 

941,320 

764, 420 

791,540 

680, 500 

574, 340 

514,740 

453, 220 

388, 420 

308, 440 

295,760 

267, 300 

298, 680 

306, 080 

259,840 

273,860 

198, 340 

194, 6S0 

152, 340 

108, 460 

87, 100 



80.41 

.41 

.41 

.58 

.76 

.95 

1.15 

1.36 

1.59 

1.84 

2.11 

2.40 

2.71 

3.05 

3.42 

3.81 

4.22 

4.64 

5.08 

5.63 

6,00 

6.48 

6.98 

7.52 

8.12 

8.79 

9.54 

10.37 

11.30 

12.35 

13. 53 

14.84 

16.29 

17.79 

19.19 

20.46 

21.60 

22,60 

23,44 

24.09 

24,55 

24,81 

24.88 

22.99 

19.92 

15.33 

8.94 



665 

1,407 

2,142 

4, 198 

7,295 

11,170 

14, 463 

18,404 

23, 991 

30, 632 

38,766 

44,555 

62, 990 

59, 660 

66, 698 

77,286 

84, 509 

89, 660 

96, 964 

112,375 

114, 798 

116, 6.58 

125, 992 

110,010 

122, 008 

118,881 

120, 488 

134, 737 

148. 322 

155. 323 
148, 213 
141,485 
153, 341 
135, 990 
161,897 
139,230 
124,057 
116,331 
106, 235 

93, 570 
75, 722 
73,378 
66, 604 
68, 667 
60,971 
39,833 
24, 483 



81,200 
26,240 
98, 920 
220, 760 
297,860 
409,880 
421,200 
464, 340 
.520,340 
588,800 
563,640 
664, 980 
622, 920 
674, 960 
651, 280 
663,280 
637, 580 
619, 440 
617,920 
600, 740 
644,800 
511,820 
449, 600 
400,840 
353, 540 
337, 200 
303, 140 
300, 100 
284, 200 
289,640 
247,400 
217, 640 
196, 720 
161, 000 
148, 920 
139, 380 
107,340 
89,640 
101,020 
72, 600 
71,860 
67,600 
60, 940 
71,800 
84, 660 
84, 440 
49, 500 
62, 100 
61,920 
41,640 
37,800 
32,840 



$0.69 

.69 

.59 

.84 

1.12 

1,42 

1.75 

2,12 

2,54 

3.04 

3.60 

4.16 

4.68 

5.11 

6,52 

5,88 

6,28 

6,72 

7.21 

7.77 

8.36 

9.00 

9.69 

10,22 

10,70 

11,13 

11,60 

12,14 

12.91 

13.72 

14. 62 

16,56 

17,07 

17.42 

17,71 

17,96 

18.18 

18.40 

16. 89 

14,65 

11,36 

6.62 



Amount required to provide 94,403 general employees a disability allowance 

equal to full pay, to run from date of disability to age 70 $6, 570, 496 

Amount required to pi'ovide 61,931 letter carriers and rural carriers a dis- 
ability allowance equal to full pay, to run from date of disability to age 65- 3, 824, 944 

Amount required to provide 13,894 railway postal clerks a disability allow- 
ance equal to full pay, to run from date of disability to age 60 1,^79, 087 

Total 11, 474, 527 

Amount required to provide 170,228 employees disability allowances equal to 
half pay, to run from date of disability to ages stated above, according to 
occupation 5, 737, 263 

Note. — Since the above table was worked out and the accompanying text 
written, the second " Gillett bill" (H. R. 22013), with its notable disability 
provision — a compromise between the limited disability clause of the Keep bill 



EETIEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 149 

and the liberal disability provision discussed above — has been favorably re- 
pprted. This provides that any employee, regardless of his length of service, 
" who, by reason of accident or illness not due to vicious habits or by reason of 
exigencies of the service, but without fault or delinquency on his part, has 
become totally and permanently disabled," may retire on an annuity equal to 
1^ per cent of his total compensation during service prior to retirement, the 
allowance for disability due to accident being never less than 20 per cent of 
his average annual compensation, and the allowance for disability on account of 
illness being granted only after 20 years of service. It will be observed that this 
is much more liberal than the provision in the Keep bill, since a disability allow- 
ance is granted after any period of service. It is much more conservative, how- 
ever, than the provision suggested above as " really adequate," on which the 
computation was made, since it provides only 20 per cent of pay as a disability 
allowance instead of 50 per cent. No estimate of the cost of this disability pro- 
vision in H, R. 22013 has been made. It lies, of course, somewhere between 
$1,157,298 a year, the estimated cost of the provision in the Keep bill, and 
$5,737,263 a year, the estimated cost of the provision suggested as " really 
adequate." 

SEPARATE EECOEDS SHOULD BE KEPT OF SUPERANNUATION AND DISABILITT. 

Whether a limited, a liberal, or a compromise disability provision 
be adopted, the confusion which the German experience shows in the 
older ages between superannuation and disability may be avoided by 
making the benefits run from date of disability to the age of retire- 
ment only and by paying them only on condition that the employee 
continue his contributions to his retirement fund, so that when he 
reaches the retirement age the disability fund will be relieved of 
further payments. If the disability benefits were to run for life, 
the cost, of course, would be very high because of the rapid increase 
in the probability of disability after about the sixtieth year of age. 
If the disability benefits are continued only to the retirement age, 
the heavy expense of disability in the advanced ages may be avoided, 
and the increase in the charges for advancing ages of entrance held 
down by the constantly diminishing period during which disability 
payments would be made. 

If the fund out of which to pay these disability benefits were 
created by uniform deductions from the salaries of new entrants and 
from promotion salaries of all groups of employees, regardless of 
the hazard of occupation, and the ages of retirement for all groups 
were the same, such a plan might be open to criticism on the ground 
that one group would be receiving a benefit at the expense of another. 
By making the disability benefits run only to the ages of retirement 
this inequality in benefits is overcome, in a measure at least, by the 
provision of the bill which groups the employees according to sever- 
ity of occupation, and gives the youngest retiring age to the most 
hazardous occupation, and the oldest retiring age to the least hazard- 
ous occupation. Under such an arrangement, employees would be 
subject to substantially the same tax in proportion to their initial 
salaries and increases, but railway postal clerks would be limited to 
disability incurred prior to age 60 and to benefits up to age 60, 



150 EETIREMENO: OE SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

letter carriers to disability incurred prior to age 65 and to benefits 
up to age 65, and departmental clerks to disability prior to age TO 
and to benefits up to age 70. 

If the cost of a liberal disability benefit were not kept entirely 
within the limit of the available fund by confining it between the date 
of disability and the age of retirement, the benefits for permanent 
disability might be reduced to 40 per cent of pay, or the benefit for 
disability due to illness might be given only after 15 years of service. 
But until reliable disability rates founded on actual American ex- 
perience are available, the disability benefit proposed in the so-called 
Keep bill — retirement on 1^ per cent of salary for each year of serv- 
ice in case of disability after 20 years of service — would seem to be 
the limit of financial safety. 

DISABILITY CLAUSE IN PEOPOSED BILL. 

Sections 6 and 7 of H. K. 21261 and sections 8 and 9 of H. K. 
28286 make provision for the creation of a fund by uniform deduc- 
tions from the salaries of new entrants and from the salaries of those 
promoted. In the bill proposed in this report (S. 1944) a fund is 
similarly created under section 8, but it is applied under section 9 to 
the payment of disability benefits instead of to the payment of annui- 
ties for back services. 

Section 8 provides for the creation of a disability fund and reads 
as follows: 

Sec. 8. That beginning with the first day of July nest following the passage 
of this act, there shall be deducted and withheld from the monthly salary, pay, 
or compensation of every employee newly entering the service to whom this act 
applies an amount equal to one-fifth of his monthly salary, pay, or compensa- 
tion during the first six months of his employment; and in every case of pro- 
motion of any person to whom this act applies, there shall be deducted and 
withheld from the monthly salary, pay, or compensation of such person an 
amount equal to the increase made by such promotion during the first three 
months from the taking effect thereof ; and the amounts so deducted and with- 
held shall be deposited in the Treasury of the United States to the credit of a 
special fund to carry out the provisions of section nine of this act. 

It will be noted that for the sake of simplicity in the matter of 
accounting, one-fifth of the monthly salary is deducted from the sal- 
ary of the new entrant during the probationary period instead of 
one-sixth, as provided for in former bills following the French 
system. 

Section 9, which makes provision for retirement in case of dis- 
ability, reads as follows: 

Sec. 9. That beginning one year after the first day of July next following the 
passage of this act, any employee to whom this act applies, who has served the 
United States for not less than twenty years, and who, by reason of accident 
or illness not due to vicious habits or by reason of exigencies of the service, 



EETIEEMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 151 

but without fault or delinquency on his part, has become totally and perma- 
nently disabled, may retire from active service prior to the age of retirement, 
and, on certificate from the head of the department or independent office in 
which he is employed to the Secretary of the Treasury setting forth such disa- 
bility and the approval of such certificate by the Secretary of the Treasury, may 
receive, out of the fund created by section eight of this act, an annual disability 
allowance, payable quarterly, equal to one and one-half per centum of his total 
compensation during service prior to such retirement. Allowances under this 
section shall be discontinued on arrival of the employee at the age of retire- 
ment unless sooner terminated by the Secretary of the Treasury. 

If, upon the retirement of an employee on a disability allowance, the money 
then to his credit under section two of this act, together with interest thereon 
at three and one-half per centum per annum, compounded annually, will not be 
sufficient to purchase an annuity, payable quarterly throughout life, for such 
employee on arrival at the age of retirement equal to his annual disability 
allowance, the Secretary of the Treasury shall deduct and withhold from 
his quarterly disability allowance an amount, computed to the nearest tenth 
of a dollar, that together with the money then to his credit, with interest, 
will be sufficient to purchase such annuity. Amounts deducted and withheld 
from disability allowances shall be treated as deductions under section two of 
this act. If the money to his credit as aforesaid is in excess of the amount 
that will be required to purchase such annuity he may withdraw such excess In 
one cash sum, or in an annuity certain limited to the age of retirement. 

The Secretary of the Treasury shall reduce or terminate the disability allow- 
ance granted to any employee whenever in his judgment it is proper to do so, 
and such action on his part shall be final and conclusive. 

In case of the death of an employee while in the receipt of a disability allow- 
ance, the amount to his credit under section two of this act shall be paid to his 
legal heirs, and the disability allowance shall cease and determine. 

The disability allowances hereby provided for shall at all times be limited 
to the fund created by section eight of this act, and if the total allowances shall 
at any time be in excess of such fund, the allowances shall be reduced pro rata 
to a sum within such fund. 

It is thought that this provision safeguards the interests of the 
Government in every way, and yet it is so worded that when the 
disability experience of the employees warrants so doing, more liberal 
benefits may be allowed by change of a few words in the bill. The 
ultimate ideal, of course, is the allowance, as soon as it is proved 
practicable, of disability benefits for total and permanent disability 
resulting from accident incurred in line of duty after any period of 
service. Provision is made for the reduction or termination of the 
allowance within the discretion of the Secretary of the Treasury, 
since it is always possible that a person thought to be permanently 
disabled may recover in part or entirely. As a precautionary meas- 
ure in the interests of the Government it is specifically provided also 
that the allowances shall be reduced pro rata, if they at any time 
exceed the amount of the disability fund. While the disability bene- 
fit provided is so limited as to make that probability very remote it 
was thought wise to put a phrase in the disability clause that would 



152 KETIREMBNT OF SUPERANNUATED CIVIL-SEEVICJE EMPLOYEE^. 

make impossible a deficit and a call on the Government for appro- 
priations. 

In pursuance of the principle laid down in the foregoing pages 
that there should be a sharp distinction drawn between disability and 
superannuation, this section provides that disability allowances shall 
be discontinued on arrival of the employee at the age of retirement, 
and that from that time on, while he shall continue to draw the cus- 
tomary amount as an annuity, it shall be paid out of the retirement 
fund created by himself instead of the disability fund. (This is 
necessary for the reason that at thie older ages it is impossible to 
differentiate between disability and superannuation.) 

In case the sum to his credit at the time of retirement from active 
service on a disability allowance is not sufficient to purchase an an- 
nuity for him when he shall reach the age of retirement equal to the 
amount of his disability allowance (which will then be discontinued), 
it will be necessary to deduct from his quarterly disability allowance 
such an amount as will be sufficient, together with the money then 
to his credit, to purchase such an annuity. As the bill stands at 
present, disability allowances being granted only after 20 years' 
service, there is no probability of the amount to an employee's credit 
at the time of retirement on account of disability being insufficient 
to purchase an annuity at the ago of retirement equal to his disability 
allowance. If the bill should be amended so as to allow of accident 
benefits after any period of service, it might happen that the amount 
to an employee's credit at the time of disablement, say, one or two 
years after entering the service, would be insufficient for the pur- 
chase of an annuity at the age of retirement equal to the disability 
allowance, and deductions would therefore have to be made as 
provided for. At present, however, with disability benefits granted 
only after 20 years' service, the sum to the credit of the employee is 
likely to be in excess of the amount required for the purchase of an 
annuity at the age of retirement equal to the disability allowance 
granted in the interval. As an injured employee is likely to be in 
need of money at the time of his disablement, the bill provides that 
this excess may be drawn at once in a cash sum, if so desired. 

PROVISION FOR REINSTATEMENT IN SERVICE. 

As persons who leave the service frequently return to it, section 
10 was introduced into the bill to provide for the reinstatement of 
such persons. It reads as follows: 

Sec. 10. That in case of reinslatomeut in the classified civil service of any 
person who at the time of his separation therefrom received a refund under 
section seven of this act, his period of service for the purpose of retirement 
and of maklufj; the monthly deduction from his salary shall be computed from 
the date of such reinstatement unless he shall, within ninety days after rein- 



BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 153 

statement, pay to the Secretary of the Treasury the amount refunded to him, 
with interest at three and one-half per centum per annum, in which case the 
sama shall be replaced to the credit of his account, and the former period of 
service shall be counted. 

PKOVISION FOR PAYMENT OP ANNUITIES FOR PAST SERVICES. 

The proposed bill thus far down to section 11, has had to do only 
with Part I of the plan, the payment of annuities for services ren- 
dered after its adoption. Sections 11 and 12, which have to do with 
Part II of the plan, the payment of annuities for services rendered 
prior to the adoption of the plan proper, are discussed by themselves 
in the chapter entitled " Cost of plan," since it is the payment of 
annuities for past services which constitutes, aside from the cost of 
administration, the sole expense connected with the plan. 

MISCELLANEOUS PROVISIONS OF THE PROPOSED BILL. 

The remaining sections of the bill make provision mainly for the 
condition and legality of its enactment. Section 13 is self-explana- 
tory, and reads as follows : 

Sec. 13. That every i)erson to whom this act applies who shall continue in 
the classified civil service after the passage of this act, as well as every person 
to whom this act applies who may hereafter be appointed to a position or p];ice, 
shall be deemed to consent and agree to the deductions made and provided for 
herein, and shall receipt in full for the salary, pay, or compensation which may 
be paid monthly or at any other time, and such payment shall be full and 
complete discharge and acquittance of all claims or demands whatsoever for 
services rendered by such ))erson during the period covered by such payment, 
notwithstanding the provisions of sections one hundred and sixty-seven, one 
hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes 
of the United States, or of any other law, rule, or regulation affecting the salary, 
pay, or compensation of any person or persons employed in the classified civil 
service to whom this act applies. 

PROVISION FOB KEEPING STATISTICAL RECORDS. 

Section 14 of the bill should have special emphasis. It reads as 
follows : 

Sec. 14. That the Secretary of the Treasury shall prepare and keep all need- 
ful tables, records, and accounts required for carrying out the provisions of 
this act. The records to be kept shall include data showing the mortality ex- 
perience of the employees in the various branches of the service, and the rate 
of withdrawal from the classified service, and any other information that may 
be of value and may serve as a guide for future valuations and adjustments of 
the plan for the retirement of employees. The Secretary of the Treasury shall 
make a detailed comparative report annually to Congress showing all receipts 
and disbursements under the provisions of this act, together with the total 
number of persons receiving annuities and disability allowances, and the 
amounts paid them. 



154 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

As pointed out in the first report made by the subcommittee on 
personnel of the Keep Commission, one of the valuable features of 
the plan is the array of reliable statistics concerning a large body 
of representative people that will gradually be collected if this 
retirement plan is adopted. In handling the accounts of the em- 
ployees under this plan records will necessarily be kept showing 
the mortality experience of the employees in the various branches 
of the service and in different localities throughout the country, the 
rate of withdrawal from the classified civil service, and much similar 
information that may be of value and service as a guide in future 
valuations and adjustments of any plan, and in reducing the cost, 
not only to the employees, but to the Government as well. 

The records should eventually prove of great interest to the in- 
surance companies in this country as well as to the public, for on them 
mortality tables of exceptional reliability might be constructed. 

PROVISION LIMITING OPERATION OF PLAN TO DISTRICT OF COLUMBIA. 

The operation of the plan is limited in the proposed bill, for rea- 
sons explained in the chapter entitled " Cost of plan," to the classi- 
fied civil service in the District of Columbia. Section 15 will be 
found on page 214. 

PROVISION MAKING MONEYS OF BILL NONASSIGNABLE AND NONATTACHABLE. 

A necessary provision in the bill is section 16, which reads as 
follows : 

Sec. 16. That none of the moneys mentioned in this act shall be assignable, 
either in law or equity, or be subject to execution or levy by attachment, gar- 
nishment, or other legal process. 

PROVISION FOR ADMINISTRATION OF PLAN. 

Section 17 of the proposed bill, which makes provision for the 
cost of administering the plan, is discussed in the chapter entitled 
" Cost of plan," on page 185. 

ENACTING CLAUSE. 

The final provision of the proposed bill is the enacting clause, 
which reads as follows : 

Sec. 18. That the Secretary of the Treasury is hereby authorized to perform, 
or cause to be performed, any and all acts and to make such rules and regula- 
tions as may be necessary and proper for the purpose of carrying the provi- 
sions of this act into full force and effect. 



CHAPTER IV. 
COST OF PLAN. 



COST OF PUTTING PLAN INTO OPERATION UNDER PERKINS BILL. 

Assuming that the proposed retirement plan is acceptable to Con- 
gress, the most important thing to be considered is the cost of putting 
it into operation. 

The plan itself is self-sustaining and asks nothing of the Govern- 
ment except the care and investment of the employees' savings. If 
the present civil service could be wiped out entirely and a fresh list 
of appointments made to-morrow, this savings and annuity plan 
might go into full operation without any appropriation from the 
Treasury except that necessary to cover the cost of keeping the ac- 
counts. Part I of the plan might indeed be put into immediate op- 
eration without Part II and the Government's help not be asked, but 
that would mean postponing the solution of the superannuation 
problem for a full generation. In that case benefits resulting to the 
service from the plan would only begin to be apparent in about 30 
years, when the old and middle-aged persons now in the service would 
have passed away. The ideal solution of the problem, however, is to 
require employees to begin at once to save for their own annuities, 
and at the same time to retire, under the provisions of the bill, all 
those who are now at the retirement age. 

The one difficulty in the way of doing this is the necessity of pro- 
viding money for the retirement of those already grown old in the 
service. If the plan were put into effect immediately there is a con- 
siderable body of old people, of 70 years of age and over, who should 
be retired at once, there are others 69 years of age who would have 
only one year of monthly deductions from salary to contribute toward 
the purchase of an annuity, there are others 68 years of age who 
would have only two years' time for accumulating the necessary sum, 
and so on down to those employees whose term of service begins with 
the enactment of the plan, each lacking something, according to the 
length of time he had served before the passage of the bill, toward 
the sum required to buy the desired annuity. The only way in which 
these persons could be retired would be through the appropriation 

155 



156 RETIREMENT OP SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. 

from some source of a sum sufficient to make up the difference be- 
tween their own savings and the amount required to purchase their 
annuities. The annual sum necessary would gradually increase for 
a few years, reaching its maximum about 30 years after the passage 
of the bill, but a few years after that the amount each year would 
fall off very rapidly until in about 50 years, when practically all now 
in the service would be dead, there would be no more need of appro- 
priations. The plan would then be self-sustaining, and the condition 
of the civil service, so far as superannuation is concerned, nearly 
what it would be if a clean sweep of the service could be made and 
the plan inaugurated to-morrow with a complete list of new ap- 
pointees. 

Experience of New Zealand. 

This difficulty was clearly perceived by the framers of the public 
superannuation act recently passed in New Zealand, as shown by the 
following press comment: 

Hitherto, no comprehensive scheme for the humane and equitable treatment 
during infirmity and old age of the servants of the State has been in operation 
in New Zealand, and critics of public affairs have complained of what they 
considered a glaring defect in the national life of the Dominion. But these 
critics had not fully realized the difficulties which presented themselves in the 
way of an application of the pension idea which would be at once financially 
sound and fair in its operation. As the Premier (the Rt. Hon. Sir Joseph G. 
Ward) pointed out in the course of a debate on the bill, the civil service in 
New Zealand is old compared with the age of the country, and it was because 
of that fact that there was a supreme difficulty on the part of the Government 
in putting on the statute looks a superannuation act J/O years after some of 
the men had joined the service, the incidence of which was light in its burden 
upon members of the service.* 

It is exactly the difficulty that confronts those who would devise 
a plan of retirement for the civil employees of the United States 
which shall be " at once financially sound and fair in its operation." 

The difficulty was met in New Zealand in the only way that can 
be devised without injustice to the whole body of employees, that is, 
by appropriation from the Government. While the New Zealand 
plan goes much farther than anything suggested in the plan under 
discussion in this report in the way of benefits (including benefits to 
widows and orphans), and has departed widely, in certain respects, 
from the savings bank idea, the necessity of keeping entirely separate 
the annuities paid on services rendered after the adoption of the plan 
and the annuities paid on services rendered prior to the adoption of 
the plan was clearly perceived, as shown by the following comments 
on their superannuation act: 

The pensions are liberal, and a scheme of this description, applying to present 
officers, many of whom can retire immediately on very fair pensions, must of 

» See The Insurance Record, London, Feb. 21, 1908. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 157 

necessity entail a heavy liability on the part of any Government. The favorite 
method, however (vide New South Wales and Cape Colony civil-service 
schemes), has been to ignore this liability and to go on paying the pensions of 
the old men who retire, out of the contributions of the young men who join the 
scheme, until the funds are exhausted, and the outlay for pensions exceeds the 
income from contributions. The actuary, Mr. Morris Fox, has made the reck- 
lessness of this method quite apparent in his comprehensive reports, and the 
Government has agreed to start the scheme with an annual payment of £20,000, 
the subsidy to be increased by such further amounts as will be sufficient to pay 
the difference between the pensions falling due and the amount of pension the 
contributions would have actually purchased. (For example, if an old servant 
retires on £400 n year while his contributions would only have purchased £10, 
the fund pays the £10, and the Government finds the balance, £390 per annum.) 
The contributions of the younger members will therefore be accumulated at 
compound interest to help provide their pensions when they become payable, 
and will not be absorbed by meeting more immediate liabilities; the cost of 
providing current pensions being borne by the present taxpayers and not by 
posterity. If the scheme were commenced without contributions, the pensions 
falling due would be the measure of the Government's annual liability, and by 
meeting this liability (or rather the portion not paid for by the contributor) at 
once. Sir Joseph Ward has made a fair division of the annual outlay between 
present and future taxpayers. It is this simple, but ingenious, financial 
arrangement which differentiates the scheme from all others with which we 
are familiar, and the result is threefold ; the solvency of the fund is secured, 
the present strain on the exchequer is the minimum compatible with soundness, 
and only a fair share of the liability is transferred to posterity. The Govern- 
ment is to be congratulated accordingly on having adopted this important 
actuarial recommendation.^ 

The necessity for keeping separate accrued and future liabilities 
was indeed well brought out in Mr. Fox's reports. There seems to 
have been no thought in his mind but that the whole of the liability 
for back services should be borne by the Government, a point which 
does not appear to have been questioned by the Government. As for 
future liabilities, it was impracticable, in view of the generous bene- 
fits provided under the scheme, for the employees to carry them alone 
and the help of the Government was expected with them also, but 
Mr. Fox insisted on the importance of reserving and accumulating 
the contributions to meet the contributors' portion of liability and 
not using them, in earlier years, to pay other claims which had not 
been provided for by contributions, namely, pensions to persons 
already in the service at the time of the establishment of the plan.^ 

Cost Dependent on Number of Employees Included. 

The cost of putting the proposed plan into operation depends, of 
course, entirely on the number of employees to whom the benefits of 
the plan are extended. If it were confined to the employees of the 

iSee The Review (Sydney), Feb. 29, 1908. 

2 See Civil Service Retirement in Great Britain and New Zealand (Senate Doc. 200, pp. 
234-235). 



158 EETIEEMENT OF SUPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 

District of Columbia only it would cost very much less than if ex- 
tended to the entire classified service, since the number of classified 
employees in the District is only 23,254 as compared with that of 
170,228 included in the entire service. At the same time, as super- 
annuation is very much greater in the District than it is outside the 
District, the need of a retirement plan is much more urgent in the 
District than it is outside. Census Bulletin 94 not only emphasizes 
the fact that superannuation among civil servants in the District is 
greatly in excess of superannuation among civil servants outside the 
District, but it also brings out in a general way that it is much 
greater among the civil servants in the District than it is among 
breadwinners throughout the country. 

The number of Government employees at least 65 years of age is 6,523. Of 
this number 1,852 are employed in the District of Columbia, and 4,671 elsewhere. 
Although less numerous in the District than elsewhere, employees of advanced 
age form a much larger proportion of the force in the District than they do of 
the force elsewhere. In the District practically one Government employee in 
14 is at least 65 years of age, while elsewhere the corresponding figures are but 
about one in 34. 

Whether these figures represent any special tendency for Government em- 
ployees to remain in service after persons in other walks of life would have 
retired, is, of course, the Interesting question. Perhaps some light may be 
thrown upon it by comparing the age distribution of the Government employees 
in the District * * * 25 years of age and over with that of the breadwin- 
ners 25 years of age and over reported at the census of 1900. 

In the District of Columbia ***!() pej. ^ent of the male employees 25 
years of age and over are at least 65. For the breadwinners in general the 
corresponding percentage is 6.3.i 

The advisability of confining the proposed plan, in the beginning, 
to the District of Columbia can be urged not only on the grounds of 
less cost and greater gain where the need is greatest, but on the 
general principle that it is desirable to proceed slowly in the inaugu- 
ration of new measures. The plan could gradually be extended by 
Congress to various classes of employees, as the wisdom of doing so 
was proved. In the proposed bill, section 15 reads as follows : 

Sec. 15. That the provisions of this act shall apply only to the classified civil 
service of the District of Columbia, which is hereby defined to include all officers 
and employees in the executive civil service of the United States in the District 
of Columbia, except persons appointed by the President and confirmed by the 
Senate, and unskilled laborers. No person serving in a position excepted from 
examination or registration as defined in the civil-service rules shall be included 
within the provisions of this act unless he has served in a competitive position 
for at least one year. Whenever any person becomes separated from the classi- 
fied service by reason of appointment into the unclassified service, such sepa- 
ration shall not operate to take him out of the provisions of this act. The 
President shall have power, in his discretion, to exclude from the operation of 
this act any group of employees whose tenure of office is intermittent or of un- 
certain duration. 

iSee Census Bulletin 04, pp. 12, 13. 



EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 159 
Two Calcttlations of Maximum C5ost for Entire Classified Service Agree. 

Two calculations have been made of the cost of putting the plan 
into operation throughout the service. They virtually agree. The 
amounts of the two sums are different, but proportionately they are 
the \-ame. 

THE first calculation. 

The first calculation was made under the direction of Mr. Benedict 
D. Flynn, assistant actuary of the Travelers Insurance Co., Hartford, 
Conn., for the Committee on Department Methods and was based 
on Table 67 of Census Bulletin 12, entitled " The Executive Civil 
Service of the United States," covering the classified employees as of 
June 30, 1903. The total number of employees included in that cal- 
culation was 103,030, and the maximum cost of paying them annuities 
for past services was found to amount to $66,985,778 in the course of 
67 years, as shown by the following table : 

Table XXVII. — Showing maximum cost of annuities for hack services for 

103,030 employees. 

[Based on census of employees as of June 30, 1903.] 



Year. 


Amount of 
appropria- 
tion. 


Year. 


Amount of 
appropria- 
tion. 


Year. 


Amount of 
appropria- 
tion. 


1907 


$725, 110 
811,840 
908,188 
1,025,293 
1,157,181 
1,258,725 
1,370,710 
1,466,424 
1,526,551 
1,570,768 
1,579,132 
1,564,974 
1,550,742 
1,534,636 
1,531,851 
1,612,159 
1,554,679 
1,546,866 
1,550,718 
1,555,588 
1,571,682 
1,589,167 
1,617,302 
1,663,981 


1931 


$1,699,374 

1,713,035 

1,724,385 

1,734,603 

1,736,047 

1,744,512 

1,746,561 

1,736,974 

1,718,542 

1,684,723 

1,635,423 

1,568,188 

1,492,830 

1,406,199 

1,314,000 

1,211,837 

1,103,182 

990,583 

889,324 

772,735 

669, 126 

572,770 

484,069 

403,305 


1955 


$331,667 
269,380 
216,046 
170,947 
133,347 
102, 450 
77,434 
57 499 


1908 


1932 


1956 


1909 


1933 


1957. 


1910 


1934 


1958 


1911 


1935 


1959 


1912 


1936 


1960 


1913 


1937 


1961 


1914 


1938 


1962 


1915 


1939 


1963 


41 884 


1916 


1940 


1964 


29,877 


1917 


1941 


1965 


20, 829 
14 152 


1918 


1942 


1966 


1919 


1943 


1967 


9,354 
5 971 


1920 


1944 


1968 


1921...'. 


1945 


1969 


3,697 


1922 


1946 


1970 


2,199 


1923 


1947 


1971 


1 251 


1924 


1948 


1972 


679 


1925 


1949 


1973 


34C 


1926 


1950 


1974 


163 


1927 


1951 


Total 




1928 


1952 

1953 


66, 985, 778 


1929 






1930 


1954 











THE SECOND CALCULATION. 

The second calculation, which was made under the direction of 
the author by the Bureau of the Census, was based on cards used in 
the compilation of Census Bulletin 94, entitled " Statistics of Em- 
ployees of the Executive Civil Service of the United States," covering 
the classified employees as of June 30, 1907. The total number of 
employees included in this most recent inquiry was 170,228, and the 



160 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

maximum cost of paying them annuities for past services was found 
to amount to $130,581,273, in the course of the next 78 years, as 
shown by the following table : 

Table XXVIII. — Showing maximum cost of annuities for hack services for 

170,228 employees. 

[Based on census of employees as of June 30, 1907.] 



Aggregate annuities payable quarterly. 



Years after the introduction of the plan. 



Less than 1 year. 
1 year. 



2 years... 

3 years . . . 

4 years . . . 

5 years... 

6 years... 

7 years . . . 

8 years . . . 

9 years . . . 

10 years . . 

11 years.. 

12 years.. 

13 years.. 

14 years.. 

15 years . . 

16 years.. 

17 years . . 

18 years . . 

19 years . . 

20 years.. 

21 years.. 

22 years . . 

23 years . . 

24 years.. 

25 years . . 

26 years.. 

27 years . . 

28 years . . 

29 years.. 

30 years . . 

31 years., 

32 years. 

33 years . 

34 years. 

35 years. 

36 years . 

37 years . 

38 years . 

39 years . 

40 years . 

41 years . 

42 years . 

43 years . 

44 years . 

45 years . 

46 years . 

47 years . 

48 years . 

49 years . 

50 years . 

51 years . 

52 years . 

53 years . 

54 years . 

55 years . 

56 years . 

57 years . 

58 years . 
69 years . 
60 years . 




121, 795 
261,819 
390,485 
556, 632 
705,135 
861,499 
003,086 
129, 118 
252, 506 
317,860 
392,028 
441,271 
491,484 
559, 337 
621,035 
679, 979 
726, 937 
791,401 
871,945 
940,921 
047, 310 
138, 272 
235, 543 
323, 097 
390, 712 

442. 268 
469, 245 
481, 754 
495, 463 
483, 861 
454,704 
419, 266 
373,275 
314,099 
232, 814 
135,067 
021,176 
901,416 
767,554 
618, 430 

, 466, 544 

302,036 

!, 132, 720 

964, 236 

792, 997 

618, 516 

', 449, 172 

.283,841 

, 125, 133 

977, 446 

840, 125 

714,958 

602, 139 

502, 310 

415,013 

339, 457 

274,814 

220,096 

174. 269 
136,301 
105, 195 



To general 
employees 
retiring at 
age of 70. 



To letter 
carriers and 
rural car- 
riers retir- 
ing at age 
of 65. 



$706, 290 

803, 6C0 

892,056 

1,020,092 

1, 123, 599 

1,249,851 

1, 358, 948 

1,449,713 

1,532,090 

1,553,682 

1,577,259 

1, 570, 667 

1, 556, 937 

1,545,965 

1, 537, 544 

1,511,480 

1,485,348 

1, 465, 143 

1,456,133 

1,438,410 

1,465,515 

1,482,258 

1,508,111 

1,530,210 

1,549,001 

1, 548, 476 

1, 544, 175 

1,538,943 

1,543,358 

1, 546, 149 

1,547,352 

1,552,364 

1,561,293 

1,564,071 

1,551,927 

1,529,148 

1,498,314 

1, 463, 090 

1,421,790 

1,367,819 

1,313,333 

1,245,255 

1, 169, 589 

1,094,285 

1,014,722 

927, 968 

842, 132 

754,800 

667, 842 

584, 828 

505, 410 

431,711 

364, 316 

304, 260 

251,508 

205, 707 

166, 464 

133, 232 

105, 399 

82, 353 

63, 495 



$156, 449 

187,943 

217, 500 

246, 545 

273, 947 

294, Oil 

312,044 

326, 639 

347,075 

371,103 

394, 799 

424, 154 

459,273 

503, 673 

542,928 

597,995 

648, 186 

708,207 

776, 330 

839, 736 

892, 680 

940, 521 

989,799 

1,036,572 

1, 072, 848 

1,122,372 

1,154,148 

1, 178, 888 

1, 197, 461 

1,197,318 

1, 188, 837 

1, 172, 208 

1, 146, 978 

1, 114, 770 

1,079,298 

1,040,360 

994,292 

946, 731 

892,842 

836, 651 

778,416 

720, 110 

662, 490 

602, 976 

542. 571 

483, 713 

426, 686 

372,822 

322,910 

277, 860 

237, 479 

201,518 

169, 715 

141,797 

117,483 

96, 476 

78, 473 

63, 182 

50, 321 

39, 605 

30,765 



BETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 161 

Table XXVIII. — Showing maximum cost of annuities for back services for 
170,228 employees — Continued, 



Years after the introduction of the plan. 



Aggregate annuities payable quarterly. 



Total. 



To general 
employees 
retiring at 
age of 70. 



To letter 
carriers and 
rural car- 
riers retir- 
ing at age 
of 65. 



To railway 

postal 
clerks retir- 
ing at age 

of 60. 



61 years 

62 years 

63 years 

64 years 

65 years 

66 years 

67 years 

68 years 

69 years 

70 years 

71 years 

72 years 

73 years 

74 years 

75 years 

76 years 

77 years 

78 years 

Total 



80, 036 

59, 950 

44, 149 

31,914 

22, 601 

15, 645 

10, 562 

6,937 

4,413 

2,709 

1,600 

902 

483 

248 

124 

54 

23 

6 



48,258 

36,114 

26, 576 

19,206 

13, 608 

9,432 

6,386 

4,212 

2,700 

1,677 

1,007 

581 

320 

171 

89 

42 

18 

6 



23, 568 

17, 777 

13, 181 

9,588 

6,830 

4,752 

3,219 

2,117 

1,344 

819 

477 

264 

137 

66 

30 

12 

5 



8,210 

6,059 

4,392 

3,120 

2,163 

1,461 

957 

608 

369 

213 

116 

67 

26 

11 

5 



130,581,273 



69,547,243 36,325,671 24,708,359 



METHOD FOLLOWED IN PEEPARING TABLES OF COST. 

The method followed in calculating the maximum cost after the 
number of employees to be included in the calculations was de- 
termined is illustrated by Tables XXIX and XXX, which were 
prepared in the course of making the last calculation. These tables 
show how the data were drawn off and the percentages of salaries 
determined for all employees included in the estimate. The total 
amount of salaries for each age to be used in determining the annui- 
ties for this age was thus obtained. These totals were then dis- 
counted to age 70 according to the probability of living based upon 
the American Experience Table of Mortality. The total annuity 
payments for each year for the remaining years of life after age 70 
were then obtained by discounting the above-discounted totals accord- 
ing to the probability of living based upon the Combined or Actu- 
aries' Experience Table of Mortality. 
74196°— S. Doc. 745, 61-3 11 



162 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Table XXIX. — Shoicing the number of general employees 65 years of age, 
each group, and the annuities to which those employees would be entitled if 
service. 





$600 


$720 


$840 


$900 


$1,000 


$1200 


$1,400 


Years of service. 


(U 

s 


1 

< 


2; 


■4-3 

o 


"5 
3 


a 

3 
o 

a 


'A 


o 




o 

S 
< 


(-4 


§ 


% 
6 

3 

2; 


1 
o 

a 
<5 


Total 


113 


$67,800 


69 


$49, C80 


29 


$24,360 


66 


S59, 400 


109 


$109,000 


175 


5210,000 


76 


$106,400 


Less than 1 year. . 


4 
4 
7 
5 
1 
3 
2 
3 
5 
4 
3 
1 
5 
11 
3 
3 
1 
4 
2 
2 
1 
3 
2 


2,400 
2,400 
4,200 
3,000 

600 
1,800 
1,200 
1,800 
3,000 
2,400 
1,800 

600 
3,000 
6,600 
1,800 
1,800 

600 
2,400 
1,200 
1,200 

600 
1,800 
1,200 






1 


840 


















2 
2 
3 
3 
2 
1 
3 
1 
4 
2 
1 


1,440 
1,440 
2, ICO 
2, ICO 
1,440 

720 
2, ICO 

720 
2,880 
1,440 

720 


4 


900 
1,800 

900 
3,600 

900 

900 


1 

1 
1 
2 
1 
3 
1 
S 
6 
7 
3 
3 
7 
6 
5 
6 
3 
3 
3 
3 
1 
5 
4 
1 
8 
2 
1 


1,000 
1,000 
1,000 
2,000 
1,000 
3,000 
1,000 
5,000 
6,000 
7,000 
3,000 
3,000 
7,000 
6,000 
5,000 
6, 000 
3,000 
3,000 
3,000 
3,000 
1,000 
5,000 
4,000 
1,000 
8,000 
2,000 
1,000 


2 
3 
2 
3 

7 


2,400 
3,600 
2,400 
3,600 
8,400 








3 
2 

1 


2,520 

1,680 

840 








1 
1 

1 
1 
1 
3 
3 
1 


1,400 
1,400 
1,400 
1,400 
1,400 
4,200 
4,200 
1,400 


4 years 
















4 
5 
9 
6 
4 
9 
9 
6 
3 
6 
6 
2 
6 
7 
7 
4 
2 
9 
8 
4 
2 
2 


4,800 
6,000 

10,800 
7,200 
4,800 

10,800 

10,800 
7,200 
3,600 
7,200 
7,200 
2,400 
7,200 
8,400 
8,400 
4,800 
2,400 

10,800 
9, 600 
4,800 
2,400 
2,400 










900 
6,300 

900 
2,700 
6,300 
3,600 
2,700 


9 years 


3 
2 
1 
2 
2 
1 


2,520 

1,680 

840 

i,eso 

1,C80 
840 








1 
2 
2 
1 
2 
4 
4 


1,400 
2,800 
2,800 
1,400 
2,800 
5,600 
5,600 


13 years 


4 
6 
6 


2,880 
4,320 
4,320 








2 

1 
1 

1 


1,680 
840 
840 
840 




3,600 

3,600 

900 




2 
1 
1 
2 

4 


1,440 

720 

720 

1,440 

2,880 


18 years 








1,800 


3 

1 
3 


4,200 
1,400 
4,200 










2 


1,680 








3 
2 

1 
2 


2, ICO 

1,440 

720 

1,440 








4 
5 
2 
1 
1 
1 
4 
2 
3 
4 
1 


2,400 

3,000 

1,200 

600 

600 

COO 

2,400 

1,200 

1,800 

2,400 

600 






2 
2 
3 
1 

2 
3 

1 


1,800 
1,800 
2,700 

900 
1,800 
2,700 

900 


1 
4 
3 
2 
4 


1,400 
5,600 
4,200 
2,800 
5,600 


25 vears 


1 


840 


2G years 




















1 
2 


720 
1,440 










30 years 


2 


1,680 


4 


4,000 


2 
2 
3 
2 
5 
2 
3 
1 
2 
2 
2 
5 
2 
1 
2 


2,400 
2,400 
3,600 
2,400 
6,000 
2,400 
3,600 
1,200 
2,400 
2,400 
2,400 
6,000 
2,400 
1,200 
2,400 


2 
2 
2 
1 
2 
2 


2,800 
2,800 
2,800 
1,400 
2,800 
2,800 






I 


720 
1,440 










2 
2 


2,000 
2,000 


33 years 






2 


1,800 
















1 
1 


900 
900 


2 

1 


2,000 
1,000 




1 


600 




















1 
1 
2 
3 
1 
1 
2 
1 
3 


1,400 
1,400 
2,800 
4,200 
1,400 
1,400 
2,800 
1,400 
4,200 








1 


720 


































1 
2 
1 


600 

1,200 

60D 


2 


1,440 


1 


840 






2 
1 
2 


2,000 
1,000 
2,000 


















1 


900 




1 


720 




































































2 


2,400 
















































1,000 






1 


1,400 






























1 


720 






















Not reported 


1 


COO 
















































RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 163 

classified according to salary and years of service, the aggregate salaries of 
retired immediately on 1 per cent of their present salaries for each year of 



$1,600 


11,800 


$2,000 


$2,500 


Piecework. 


Not re- 
ported. 


i3 
"3 

o 


3 
s> 
o 


i 


12; 


a 

o 

n 
< 


a) 

.a 

a 

3 
"A 


"S 

o 

a 
< 


<a 

.a 

a 

3 

12; 


■4-3 
CI 
3 

o 

a 


a 

3 


3 

a 
< 


iz; 


3 
§ 

a 
< 


iz; 


3 
§ 

a 
< 




40 


$64,000 


49 


$88,200 


40 


$80, 000 


23 


$57,500 


5 


$6,000 


4 


$4, 500 


$926,840 




$203,319.15 




















3,240 

8,140 
14, 560 
14, 540 
17,600 
16, 940 

7,220 
12,960 
28,920 
37, 100 
26, 420 
14,260 
33,380 
38,960 
31, 560 
20, 420 
34, 280 
35,780 
23,960 
22, 660 
27,240 
18,880 
22,080 
14, 560 
25,440 
38, 360 
19,940 
14,000 
20, 100 
12,620 
26,920 

8,400 
17,520 
17,740 
21,500 
19,900 
13, 300 

9,200 

11,720 

11,300 

. 20,280 


0.50 
1.25 
2.00 
3.00 
4.00 
5.00 
6.00 
7.00 
8.00 
9.00 
10.00 
11.00 
12.00 
13.00 
14.00 
15.00 
16.00 
17.00 
18.00 
19.00 
20.00 
21.00 
22.00 
23.00 
24.00 
25.00 
26.00 
27.00 
28.00 
29.00 
30.00 
31.00 
32.00 
33.00 
34.00 
35.00 
36.00 
37.00 
38.00 
39.00 
40.00 
41.00 
42.00 
43.00 
44.00 
45.00 
46.00 


10.20 

101. 75 

291. 20 

436. 20 

704. 00 

847. 00 

433. 20 

907. 20 

2,313.60 

3,339.00 

2, 642. 00 

1,568.60 

4, 005. 60 

5,064.80 

4, 418. 40 

3,063.00 

5,484 80 


























































1 


2,000 






















1 


2,500 








900 










1 


2,000 






























1 

1 


1,800 
1,800 


















3 


4,800 






1 


2,500 










1 


2,000 










2 
1 

1 
1 

1 


3,200 
1,000 
1,600 
1,600 
1,C00 


1 


1,800 






























2 


3,600 


1 

1 


2,000 
2,000 


























1 
1 
2 
2 
1 
2 
1 
1 


1,800 
1,800 
3,600 
3, 600 
1,800 
3,600 
1,800 
1,800 


1 
1 


2,500 
2,500 






















3 

1 
1 
1 
1 
1 


4,800 
1,600 
1,600 
1,600 
1,600 
1,600 


2 
2 
1 
1 
1 


4,000 
4,000 
2,000 
2,000 
2,000 










1 
1 

1 


2,500 
2,500 
2,500 










6,082.60 
4,312.80 
4,305.40 
5, 448. 00 
3,964.80 
4,857.60 
3 348 80 








1,400 








1,200 




1,200 






2 


4,000 








1,200 






2 

1 


3,200 
1,600 


1 
1 

1 


1,800 
1,800 
1,800 








1,000 


1 
1 
1 
1 
1 
1 
1 
1 


2,000 
2,000 
2,000 
2,000 
2,000 
2,000 
2,000 
2,000 








1,200 


6,105.60 
9, 590. 00 
5,184.40 
3,780 00 


2 


5,000 






1 


1,600 










1 
2 

1 
2 


1,800 
3,600 
1,800 
3,600 


1 

1 


2,500 
2,500 










1 
3 
2 


1,600 
4,800 
3,200 










5,628 00 










3,659.80 
8,076.00 
2,604.00 
6,606 40 


1 


2,500 


















3 


4, 800 1 


1,800 
1,800 
3,600 
5,400 
3,600 
















1 
2 
3 
2 


1 
3 

1 
1 


2,000 
6,000 
2,000 
2,000 


1 
1 


2,500 
2,500 










5, 854. 20 














7,310 00 




3,200 
1,000 
1,600 


1 


1,200 






6,965.00 
4, 788. 00 










2 


5,000 










3,404.00 
4, 453. 60 
4,407.00 
8,112.00 


1,600 
1,600 
1.600 


2 


3,600 


1 
1 


2,000 
2,000 










1 


2,500 










4 


7,200 
1,800 
5,400 
3,600 
1,800 
1,800 
1,800 










1,600 
3,200 


1 
3 
2 


1 
5 
3 

1 


2,000 
10,000 
6,000 
2,000 














15, 000 
29, 600 
21,820 
10, 100 
6,000 
6,700 


6, 150. 00 
12, 432. 00 
9,382.60 
4, 444. 00 


1 
3 

1 


2,500 
7,500 
2,500 


1 


1,200 


































2, 700. 00 










1 


2,500 










3,082.00 










































2,400 


48.00 


1, 152. 00 




















































720 
600 


50.00 
22.00 


360. 00 


























132. 00 





























164 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Tarle XXX. — SJtotving the annuities that ivould he due all general employees 
for each year of service, and the annuities due each age group the first year 
the same annuities. 



Present age of 
annuitant. 



Total . 



years . . 
years., 
years . . 
years . . 
years., 
years.. 
years., 
years., 
years . . 
years., 
years., 
years . . 
years., 
years . . 
years., 
years . . 
years., 
years . . 
years., 
years . . 
years . . 
years., 
years . . 
years., 
years., 
years . . 
years . . 
years., 
years . . 
years . . 
years., 
"years., 
years . . 
years'. 



Annuity 
if retired 
imme- 
diately. 



$150 

380 

911 

308 

1,572 

1,290 

3, 223 

4,491 

2,000 

8,277 

7,340 

8, 230 

15,702 

12,359 

23, 750 

28, 258 

31,428 

45,983 

58, 208 

05, 400 

81,580 

98,835 

118,590 

125, 220 

170, 098 

107,302 

203, 319 

•200, 837 

207,790 

210,039 

172,373 

185, 291 

104, 207 

104, 133 



Annuity 
at retire- 
ment age. 



SI 15, 130 
114,958 
148,388 
139, 288 
102, 185 
158,042 
153, 73() 
155,057 
119,005 
125,001 
108,022 
105,363 



Aggregate annuities payable quarterly. 



Imme- 
diately. 



1 yiear. 



2 years. 



3 years. 



4 years. 



After the introduction of the plan when the youngest 
annuitant will be one whose present age is— 



70 



$470, 860 



97 

290 

718 

255 

1,324 

1,111 

2,794 

3,939 

1,825 

7,403 

6, 020 

7,481 

14, 433 

11,394 

22,032 

20,307 

29, 480 

43,343 

55,171 

02,246 

77,809 

94, 068 



69 



$535,773 



37 

174 

400 

180 

972 

841 

2,170 

3,128 

1,477 

6,095 

6, 535 

6,343 

12,396 

9,903 

19,362 

23, 407 

20,416 

39, 171 

50,252 

57, 108 

71,919 

87, 909 

110,458 



68 



$594,704 



13 

96 

275 

122 

688 

617 

1,643 

2,430 

1,173 

4,934 

4,557 

5,303 

10,510 

8,505 

16, 829 

20,570 

23, 451 

35, 100 

45,415 

52, 016 

65,983 

81,247 

102, 934 

110, 293 



$680,061 



4 

47 

151 

78 

465 

437 

1,206 

1,840 

911 

3,918 

3,689 

4,306 

8,787 

7,211 

14, 453 

17,879 

20, 009 

31,160 

40, 695 

47,009 

60, 100 

74,541 

95, 359 

102, 780 

142, 306 



$749,066 



20 
75 

47 

298 

296 

853 

1,351 

690 

3,044 

2,930 

3,534 

7,235 

6,029 

12, 254 

15, 355 

17,912 

27, 384 

36, 127 

42, 123 

54,315 

67, 895 

87,779 

95, 216 

132, 009 

133, 635 



1 The original tables, of which this is an illustration, continue down to the age of the 
youngest person now in the servica. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 165 

between the ages of 95 and 58^ if retired immediately on 1 per eent of salary 
and each year thereafter during the first 12 years ^ if retired at the age of 10 on 



Aggregate annuities payable quarterly. 


5 years. 


6 years. 


7 years. 


8 years. 


9 years. 


10 years. 11 years. 


12 years. 


After the introduction of the plan when the youngest annuitant will be one whose present age is— 


65 


64 


63 


62 


61 


60 


59 


58 


$833,234 


S905, 965 


$966, 475 


$1,021,393 


$1,035,788 


$1,051,506 


$1,047,111 


$1,037,958 


















8 
32 
26 

178 

190 

577 

956 

507 

2,305 

2,276 

2,806 

5,857 

4,964 

10,246 

13,019 

15, 383 

23,801 

31,749 

37,395 

48, 670 

61, 359 

80,242 

87,647 

122,906 

124, 532 

155, 603 


3 
12 
13 

98 

114 

370 

647 

359 

1,692 

1,723 

2,180 

4,651 

4,019 

8,436 

10, 885 

13,042 

20,441 

27,595 

32,863 

43, 207 

54, 982 

72,800 

80, 121 

113,136 

115,368 

145,004 

152,204 


1 

4 

6 

48 

63 

222 

415 

243 

1,197 

1,265 

1,651 

3,613 

3,192 

6,829 

8,962 

10, 904 

17,331 

23, 700 

28,563 

37, 970 

48, 810 

65,510 

72, 690 

103,422 

106, 197 

134,333 

141,837 

147,497 












1 

2 
21 
31 
122 

248 

156 

810 

895 

1,212 

2,736 

2,480 

5,423 

7, 255 

8,978 

14,490 

20,094 

24,531 

33, 002 

42,894 

58,425 

65,411 

93,830 

97,078 

123, 655 

131,399 

137.450 

148,764 










1 
8 
13 

60 

136 

93 

519 

605 

858 

2,009 

1,878 

4,213 

5,761 

7,268 

11,931 

16, 801 

20,798 

28, 343 

37,282 

51,599 

58, 337 

84, 434 

88,075 

113,037 

120,954 

127,, 335 

1.38,631 

114,809 








3 

5 

26 

67 

51 

311 

388 

580 

1,422 

1,379 

3, ItiO 

4,475 

5,772 

9,059 

13,8.33 

17,389 

24, 030 

32,019 

45,089 

51,522 

75,. 303 

79,255 

102,553 

110,5ti8 

117,213 

128,429 

106, 989 

119,986 


1 

2 

10 

29 

25 

171 

232 

372 

962 

976 

2,342 

3,388 

4,484 

7,670 

11,199 

14,318 

20,091 

27, 147 

38,949 

45, 022 

66,506 

70,684 

92, 283 

100,313 

107,148 

118,220 

99,116 

111,813 

103,638 




1 

4 

11 

11 

84 

128 

223 

616 

660 

1,6.57 

2,488 

3,395 

5,9.58 

8,893 

11,591 

16,542 

22, 698 

33,227 

38,891 

58,115 

62,426 

82, 303 

90, 268 




97,211 






108, 069 








91,2.37 










103, 585 












96, 579 














101,087 



















*The original tables are carried through 78 years, when, according to the mortality 
table, the youngest person now in the service will be dead. Only 12 years are given as 
an li lustration. 



166 KETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 

Comparison of Two Calculations. 

At first glance the second calculation seems remarkably large when 
compared with the earlier one, but the difference in the amounts is 
readily accounted for, and the results are, in fact, when analyzed, 
astonishingly similar, considering the differences in the data employed 
in making the calculations. There are three reasons why the last 
result should be larger than the first : 

(1) The last calculation includes 67,198 more employees than does 
the first. 

(2) The last calculation is based on earlier ages of retirement, 60 
and 65 having been adopted for two groups of employees, with 70 
years for the third group, which naturally increases the cost above 
the first calculation, based on only one age of retirement, that of 70 
years. 

(3) The last calculation is based on two mortality tables, the Com- 
bined or Actuaries' Table and the American Experience Table. The 
former, which was used in making the last part of the last calcu- 
lation, shows a slightly longer expectation of life from age 70 than 
the latter, which was employed as the basis for the whole of the first 
calculation, and the use of the Combined or Actuaries' Table in con- 
nection with the American Experience Table has therefore raised 
the cost somewhat in the second calculation. 

GEEATEK NUMBER OF EMPLOYEES INCLUDED IN LAST CALCULATION. 

The greater number of people included in the last calculation is 
explained by two facts, first, the increase in the size of the service, 
owing both to the Government's enlarged activities and the growing 
tendency to bring into the classified service new groups of employees; 
and, second, the inclusion in the inquiry of persons not classified but 
reported as classified, and also of persons reported as unclassified but 
included as classified because investigation showed them to belong to 
the classified service. 

Not all the employees of the civil government of the United States 
were included in these computations. On July 1, 1907, according to 
the Official Kegister, the executive civil service, exclusive of the con- 
sular and diplomatic service, furnished employment to 286,902 per- 
sons. Of this number 101,028 were omitted from the statistics of 
Census Bulletin 94. In a few instances this was because the returns 
were received too late for tabulation, but more often it was because 
certain classes of employees- are peculiar in some technical respect, 
such as the character of their appointment or the method of their 
compensation, and thus the inclusion of data concerning them would 
have tended to destroy the comparability of the figures for classes 
which are in technical respects alike. The most important of the 



EETIREMElsrT OF StrPERANlsrUATED CIVlL-SERVlCE EMPLOYEES. 167 

classes omitted for the latter reason include 62,663 postmasters, 
18,376 mechanics and laborers at navy yards and naval stations, 
12,850 clerks in post offices not having free delivery, and 1,031 occa- 
sional employees of the Weather Bureau. Data for 4,584 employees 
of the Isthmian Canal Commission at work on the Isthmus were too 
incomplete to be included. From this statement of the most im- 
portant classes omitted from Bulletin 94 it will be seen that these 
omissions did not prevent the use of the data collected for the bulle- 
tin in computing the cost of annuities for back services under the pro- 
posed plan, for the reason that it is not proposed to extend the plan 
to those classes. 

The first estimate was based on Table 67 of Census Bulletin 12, 
covering the executive civil service as of June 30, 1903, and embraced 
103,030 employees. In preparing the present estimate the cards used 
in the preparation of Census Bulletin 94 showing the executive civil 
service as of June 30, 1907, were used, and covered 170,228 employees. 

Each of the 185,874 employees included in Bulletin 94 was repre- 
sented in the Bureau of the Census by a tabulation card showing, 
in addition to other matter, the age, years of service, rate of compen- 
sation, and occupation of the employee. All the information was 
thus available for calculating the maximum cost of annuities for 
back services. In examining these cards to ascertain how many of 
these employees in the executive civil service were also included in the 
classified civil service, it was found that a considerable number of 
employees did not understand their technical status in the civil 
service and did not answer accurately the question as to whether they 
were classified or unclassified. Charwomen, for instance, frequently 
made the mistake of reporting themselves as classified. On the other 
hand, a considerable number of railway postal clerks reported them- 
selves, erroneously, as unclassified. This seems, in the latter case, in- 
credible, because the railway postal clerks were one of the first large 
groups of Government employees to be placed under civil service rules 
and their status has never been changed. The error did, however, occur, 
for the reason possibly that old clerks who came into the civil service 
under blanket rule realized only that they had never taken an exami- 
nation, and supposed, therefore, that they had not been classified. 
From the cards it was impossible to tell the names of the individual 
represented by the card except on tracing the number of the card 
back to the original schedule made by the individual, but as it would 
have required months of time to do this, it was decided to include the 
cards of all employees who reported themselves as classified, and to 
make an individual separation of the cards of those who reported 
themselves as unclassified. 

These decisions were regarded as being in harmony with the gen- 
eral rule, pursued throughout the computations, that all doubtful 



168 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

cases of whatsoever sort were to be decided in favor of the alternative 
which would make the calculation of the cost of annuities for back 
services a maximum figure. In accordance with this rule, 170,228 
employees w ere included in the computation, 67,198 more individuals 
than were taken account of in the earlier calculation. 

The classes excluded from the two calculations are as follows : 

Classes excluded from the first calculation. 

Classified employees in the District of Columbia (retirement age, 70)— 22,273 
Classified employees elsewhere than in the District of Columbia (retire- 
ment age, 70) 102,464 

124, 737 

Less employees in the District of Columbia who had been in 
the service less than one year 1, 781 

Less employees elsewhere than in the District of Columbia who 

had been in the service less than one year 19, 712 

Less employees whose years of service were not reported 163 

Less employees without salary 51 

21,707 

Number of persons included in the first estimate of cost of an- 
nuities for back services 103, 030 

Not all of the employees of the civil government were included in 
the last calculation. Of the 286,902 persons shown in the Official 
Register, 170,228 were included, as follows : 

Classes excluded from the second calculation. 

According to the Official Register of July 1, 1907, the executive civil 
service, exclusive of the consular and diplomatic service, furnished 

employment to 286, 902 

In preparing the estimate of cost of annuities for back services, the 
following groups of persons were omitted : 

Groups included in Official Register, but omitted from 
Bulletin 94 and present computation — 

Postmasters 62, 663 

Mechanics and laborers at navy yards and na- 
val stations 18,376 

ClM"ks in post offices not having free delivery 12, 850 

Occasional employees of Weather Bureau 1, 031 

Isthmian Canal employees on the Isthmus 4, 584 

Other miscellaneous classes 1, 524 

101, 028 

Groups included in Official Register, and in Bulletin 
94, but omitted from present computation — 

Laborers, unskilled 7, 255 

Janitors, scrubbers, cleaners, and charwomen 1, 532 

Special agents, experts, appraisers, and commis- 
sioners 850 

Laborers, skilled 817 

Guards 695 



EETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 169 

In preparing tlie estimate of cost of annuities for bacii services, the following 
groups of persons were omitted — Continued. 

Groups included in OfBcial Register, and in Bulletin 
94, but omitted from present computation — Cont'd. 

Heads of local offices 502 

Firemen 441 

Cooks and baliers 371 

Physicians and surgeons 254 

Farmers 236 

Domestics and waiters 201 

Stewards and quartermasters 159 

Heads of departments, bureaus, and independ- 
ent offices 115 

Other miscellaneous classes 2, 218 

15,646 

116, 674 

Number of persons Included in the last estimate of cost of annui- 
ties for back services 170, 228 

EARLIER RETIREMENT AGES IN LAST CALCULATION. 

The number of employees included in the calculation to be retired 
at the various ages of retirement follows : 

Railway postal clerks (retirement age 60) 13,894 

Letter carriers and rural carriers (retirement age 65) 61,931 

All other employees (retirement age 70) 94,403 

Total 170,228 

TEST OF ACCURACY OF TWO CALCULATIONS. 

Having the total number of employees shown in the first calculation 
(103,030) , the total number of emploj'ees shown in the second calcula- 
tion (170,228), and the aggregate annuities payable to the first group 
($66,985,778) as a basis for the calculation, the aggregate annuities 
that should be shown by the last calculation may be determined, 
assuming, of course, that the first calculation is correct, that the age 
distribution has remained the same, and that salaries on the average 
have remained the same. 

Since no interest factor was used in calculating the cost of the 
annuities for back services, the expectation of life under the Ameri- 
can Experience Table at the various retirement ages may be used 
as the value of an annuity of $1, and by multiplying the number 
of employees to be retired at the various ages by this value of an 
annuity of $1 at the corresponding retirement age, and then dividing 
the sum of these by the result of a similar computation covering the 
employees included in the first calculation, a result will be obtained 
which shows the ratio of the amount of total annuities payable for 
past services under the first calculation to the amount the last cal- 
culation should show. 



170 RETIEEMENT OP SUPERA]SrN"TJATED CIVIL-SEEVICE EMPLOYEES. 

As the annuity payments under the last calculation are to be made 
quarterly, first payment in three months after the emploj^ee reaches 
the age of retirement, the annuity values (13.645, 10.845, and 8.415) 
used in the first part of the following calculation, covering the last 
estimate, are the curtate expectation of life for the respective retire- 
ment ages of 60, 65, and 70, according to the Combined or Actuaries' 
Table of Mortality, and correspond to annual payments when the first 
payment is to be made in one year, with 0.375 added to cover the addi- 
tional cost of annuity payments made quarterly, first payment in 
three months, instead of at the end of the year. The first calculation 
was based throughout on the American Experience Table of Mor- 
tality, lx+§. first payment immediate, on the assumption that, on 
the average, the employees would retire at the age of 70^ years. The 
complete expectation of life under this table at the age of 70| is 
approximately 8.25 years. The calculation may therefore be stated as 
follows : 

13, 894 X 13.645= 189,584 

61, 931 X 10.845= 671,642 • 

94, 403 X 8.415= 794,401 

170, 228 1, 655, 627 

103, 030 X 8.25 = 849,997 

1, 655, 627H-849, 997= 1.948 

1.948 X $66,985,778 $130, 488, 295 

The last calculation shows a cost of 130, 581, 273 

Difference $92, 978 

This difference might be reduced by carrying the decimals out 
farther, but since the difference is but slightly over seven one-hun- 
dredths of 1 per cent, furth(;r refinement would seem to be a waste of 
time. 

Probable Cost Much Less than Maximum. 

This total maximum sum of $130,581,273 is, however, only the pos- 
sible total cost of putting the proposed plan into operation and ap- 
plying it to the whole number of employees included in this inquiry; 
that is, to 170,228 persons. It is not the probable cost, which is greatly 
less. There are three reasons why the actual cost will be much kss 
than the sum of $130,581,273 during the course of the next 78 years. 

(1) This sum allows for mortality, but not for resignations. 

(2) This sum allows for annuities based on present salaries, whereas 
the bill provides for annuities for back services based on the average 
salary received in the past (1| per cent of total compensation during 
entire period of service), which in the majority of cases is consider- 
ably less than the present salary. 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 171 

(3) This sum alloAvs for annuities to persons of retiring age who 
might remain in the service after reaching that age in accordance 
with the provision contained in section 4 of the proposed bill. 

BECAUSE CALCULATION MAKES NO ALLOWANCE FOR RESIGNATION. 

The cost of annuities for past services could be discounted by the 
probability of living, since tables of mortality, which show this, are 
available, but it could not be discounted by the probability of resign- 
ing, since there are no available data on which a table of resignations 
could be constructed. A very great margin of safety is, therefore, 
undoubtedly secured by ignoring resignations in making the estimates 
of possible cost. 

Generally speaking, the rate of resignation is usually held to be, 
roughly, equal to the mortality. Mr. Miles M. Dawson, the well- 
known actuary, states, indeed that it is much greater. In an article 
on the value and cost of service pensions, he says : 

There is another view of the cost which in practice has, perhaps, more sig- 
nificance to the employer than even the foregoing, and that is : To what per- 
centage addition to the entire pay roll is it equivalent? This involves calcula- 
tions based upon rates of withdrawal and dismissal from the service, and these 
rates would differ so widely in different employments that it would be useless 
to undertake to estimate this cost. It is, however, a matter of common observa- 
tion that in most employments withdrawals and dismissals greatly outnumber 
the deaths.* 

While it can not be shown with any definiteness how much this 
maximum cost must be discounted to allow for the resignations, it 
can be shown that they will probably be numerous enough to prevent 
the amount of the annual appropriation ever reaching anything like 
the maximum sums shown in Table XXVIII. This table shows that 
the possible appropriation increases gradually from $1,121,795, becom- 
ing a little over $2,000,000 six years after the adoption of the plan, a 
little over $3,000,000 in 20 years, and reaching its maximum of 
$3,495,463 in 28 years, after which it falls off, gradually at first and 
very rapidly at the last, until in 78 years it has entirely disappeared. 
But these figures are based on 170,228 individuals, and assume that 
not one of the employees now in the service entitled to an annuity for 
back services will resign before reaching the age of retirement, and 
that all employees included in the calculation have received their 
present salaries from the date of their original appointments. It is 
certain, of course, that many will resign, and that many employees 
have received lower salaries in the past than they are receiving at 
present. It is therefore equally certain that the sum required must 
be considerably less than the maximum given. 

^ See " Value and cost of service pensions," by Miles M. Dawson, Tlie Railway Age, 
Sept. 2, 1904. 



172 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

The important question, then, with reference to the cost of putting 
the plan into operation throughout the classified service, is this: 
What effect will the establishment of the plan have on the rate of 
resignations fn the service? It will undoubtedly have a tendency to 
discourage resignations. This effect will be most marked among the 
employees who have reached advanced ages, but it will be less and less 
pronounced the farther away the employee is from the age of retire- 
ment. It will be least noticeable, owing to the remoteness of the 
benefit offered, on those who have been in the service the shortest 
time, and that really means almost half the service, since census 
reports show that 48.2 per cent of those now in the executive civil 
service have worked for the Government less than five years.^ It fol- 
lows, therefore, that if allowance is to be made for resignations only, 
the sum of $1,121,795, estimated as the maximum cost the first year, 
if 170,228 employees are included in the plan, would be about the true 
sum required for that year, because few employees 70 years of age 
and over would be likely to resign just before they became entitled to 
retirement allowances, but with each additional year the increasing 
excessiveness of the estimated annual appropriation becomes more 
apparent, the number of resignations for which no allowance has been 
made increasing with remoteness from the age of retirement. 

BECAUSE CALCULATION IS BASED ON PRESENT SALARIES INSTEAD OF AVERAGE 

SALARIES. 

Census Bulletin No. 94 shows that the average compensation of em- 
ployees in the executive civil service is lowest in the younger ages 
and highest in the older ages. The average compensation of em- 
ployees from 20 to 24 years of age is $785, while for those from 70 
to 74 years of age the average compensation is $1,125. In the Dis- 
trict of Columbia the average compensation ranges from $781 for 
employees from 20 to 24 years of age, to $1,2G3 for employees 70 
to 74 years of age. The calculations of cost for annuities for back 
services have been made on the basis of present salaries, and as the 
salaries for employees increase, in the great majority of cases, with 
age, the present salaries of those under consideration are higher 
than their average salaries and therefore the estimate of cost is 
greater by reason of that fact than the actual cost would be. 

BECAUSE CALCULATION MAKES NO ALLOWANCE FOR RETENTION OF PERSONS IN THE 
SERVICE AFTER THE AGE OF RETIREMENT. 

There would undoubtedly be numerous employees whose interest 
in their work and whose efficiency would make desirable their con- 
tinuance in office after reaching the age of retirement in accordance 

» See Census Bulletin 94, p. 27. 



EETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 173 

with the provision contained in section 4 of the proposed bill. Others 
who had entered the service late in life would remain a few years 
beyond the age of retirement in order to increase the amount of 
their annuities. The retention of every such individual would 
reduce the total payment of annuities for back services. 

From the foregoing it will be seen that the calculated cost of 
annuities for back services is in excess of reality by the amount of 
annuities saved through resignation of persons before reaching the 
age of retirement, phis the difference between the amount of annui- 
ties based on final salaries and the amount of annuities provided 
for the bill based on aggregate salary, plus the amount of annuities 
saved through retention of persons in the service after the age of 
retirement. 

CALCULATION INCLUDES PAYMENT ON BACK SERVICES TO ALL PRESENT EMPLOYEES. 

It is true, of course, that those in the service who are now at the 
age of retirement represent the residue of a service that was much 
smaller at the time of their entrance into it than is the case now on 
their leaving it. It may be suggested that, since the service is 
larger n6w than it was when those now at the age of 70 entered it, 
the number who will be eligible for retirement in 28 years — the year 
of estimated maximum cost — will be correspondingly large and the 
annuities payable for back services accordingly greater. It should 
be remembered, however, that to offset this is the fact that those 
who reach the retirement age 28 years hence will have been providing 
for their own annuities by 28 years of savings and the Government, 
instead of having to pay annuities for the full period of service, as 
will be necessary the first year of the plan, will only provide for 
annuities on the difference between the full period and 28 years. 

COST or PUTTING PLAN INTO OPERATION UNDER GILLETT BILL. 

Calculations as to the cost of putting into operation the Gillett bill 
(H. R. 22013), favorably reported by the Committee on Reform in 
the Civil Service, House of Representatives, have also been made by 
the author. Like the calculations on the cost of the Perkins bill, 
they were carried through 78 years, or to the year when, according 
to the mortality table used, all in the service at the time of the 
passage of the bill, would be dead. They show that the cost of put- 
ting into effect throughout the service the Gillett bill (which is sim- 
ilar in all essential respects to the Perkins bill but limits the amount 
which the Government will contribute for any one individual for 
services rendered prior to the adoption of the bill to a sum which, 
with the annuity provided by the individual's own contributions, will 
not exceed $600 a year), would be $87,055,280. 



174 HETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 
Comparison of Cost of Peekins and Gillett Bills. 

The cost of putting into effect the Perkins bill (S. 1944) through- 
out the classified service being $130,581,273, and the cost of putting 
into effect the Gillett bill (H. R. 22013) throughout the service being 
$87,055,280, in the course of the next 78 years, it follows that the dif- 
ference in cost between the two bills would be $43,525,993, as shown 
by the following table : ^ 

Table XXXI. — Showing total and comparative cost to the Government of estab- 
lishing plan for retiring employees under terms of Pa-kins bill {8. 1944) O'^d 
Gillett Mil {H. R. 22013). 



All employees. 



Excess cost 
of establish- 
ing Perldns 
bill (S. 1944) 
for all em- 
ployees over 
cost of es- 
tablishing 
Gillett bill 
(H. R. 22013) 
for all em- 
ployees. 



Cost of es- 
tablishing 
Gillett bill 
(H. R. 22013) 
for all em- 



Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for all em- 
ployees. 



General employees. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for general 
employees 
over cost of 
establishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 



Cost of es- 
tablishing 

Perkins bill 

(S. 1944) 

for general 

employees. 



Immediately. 

1 year 

2 years 

3 years 

4 years 

5 years 

6 years 

7 years 

8 years 

9 years 

10 years 

11 years 

12 years 

13 years 

14 years 

15 years 

16 years 

17 years 

18 years 

19 years 

20 years 

21 years 

22 years 

23 years 

24 years 

25 years 

26 years 

27 years 

28 years 

29 years 

30 years 

31 years 

32 years 

33 years 

34 years 

35 years 

36 years 

37 years 

38 years 

39 years 

40 years 

41 years 

42 years 

43 years 

44 years 

45 years 



843,525,993 



.?87,055,280 



$130,581,273 



$37,366,001 



832,181,242 



143,251 
169,714 
188,507 
220,200 
249,315 
287,703 
327,280 
355,677 
389, 989 
407,830 
429,763 
437,813 
445,. 360 
460,260 
485,707 
500, 456 
517,114 
533,993 
564,221 
588,925 
640,838 
686,504 
742,475 
804, 487 
864,296 
908,608 
956,207 
005,355 
000,186 
125,442 
180,277 
.227,543 
,304,964 
,365,805 
, 408, 406 
,431,587 
,440,830 
,440,176 
,425,883 
,394,017 
,356,629 
,295,772 
,230,176 
,161,036 
,087,321 
,004,177 



978,544 
1,092,105 
1,201,978 
1,336,432 
1,455,820 
1,573,796 
1,675,806 
1,773,441 
1,862,517 
1,910,030 
1,962,265 
2,003,458 
2,046,124 
2,099,077 
2,135,328 
2,179,523 
2,209,823 
2,257,408 
2,307,724 
2,351,996 
2,406,472 
2,451,768 
2,493,068 
2,518,610 
2,526,216 
2,5.33,760 
2,513,038 
2,470,399 
2,435,277 
2,358,419 
2,274,427 
2,191,723 
2,068,311 
1,948,294 
1,824,408 
1,703,480 
1,580,346 
1,461,240 
1,341,671 
1,224,413 
1,109,915 
1,006,264 
902,544 
803,200 
705,676 
614,339 



1,121,795 
1,261,819 
1,390,485 
1,556,632 
1,705,1.35 
1,861,499 
2,003,086 
2,129,118 
2,252,-506 
2,317,860 
2,392,028 
2,441,271 
2,491,484 
2,559,337 
2,621,035 
2,679,979 
2,726,937 
2,791,401 
2,871,945 
2,940,921 
3,047,310 
3,138,272 
3,235,543 
3,323,097 
3,390,712 
3,442,268 
3,469,245 
3,481,754 
3,495,463 
3,483,861 
3,454,704 
3,419,266 
3,373,275 
3,314,099 
3,232,814 
3,135,067 
3,021,176 
2,901,416 
2,767,554 
2,618,430 
2,466,544 
2,302,036 
2,132,720 
1,964,236 
1,792,997 
1,618,516 



125,977 

152, 962 

171,346 

202,051 

228,645 

266,036 

303,523 

329,671 

360,856 

375,951 

392, 179 

395,125 

397, 661 

405,974 

421,344 

426, 420 

434, 885 

442,684 

461,991 

476,140 

514,059 

547,619 

589,807 

638,5.33 

683,759 

717, 688 

756, 450 

799, 975 

849,367 

907,003 

961,377 

1,019,701 

1,091,157 

1,156,078 

1,203,244 

1,233,396 

1,2,50,015 

1,256,497 

1,251,669 

1,229,301 

1,201,914 

1,156,808 

1,100,377 

1,039,998 

974,326 

897,925 



580, 
650: 
720: 
818 



1,055 

1,120 

1,171 

1,177 

1,185 

1,175 

1,159 

1,139 

1,116 

1,085: 

1,050 

1,022 

994: 

962: 

951 

934 

918 

891 

865 

830 

787, 

738 

693 

639 

585. 

532 

470 

407 

348 

295 

248 

206 

170 

138 

111 

88 

69 

54 

40 

30 



$69,547,243 



706,290 
803, 600 
892,056 
1,020,092 
1,123,599 
1,249,851 
1,358,948 
1,449,713 
1,532,090 
1,553,682 
1,577,259 
1,570,667 
1,556,937 
1,545,965 
1,537,544 
1,511,480 
1,485,348 
1,465,143 
1,456,133 
1,438,410 
1,465,515 
1,482,258 
1,508,111 
1,530,210 
1,549,001 
1,548,476 
1,544,175 
1,. 538, 943 
1,543,3,58 
1,. 546, 149 
1,547,3.52 
1,552,364 
1,-561,293 
1,564,071 
1,551,927 
1,529,148 
1,498,314 
1,463,090 
1,421,790 
1,367,819 
1,313,333 
1,245,255 
1,169,589 
1,094,285 
1,014,722 
927, 968 



1 For cost of pension paid wholly from the Public Treasury see pages 48-52. 



RETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 175 

Table XXXI. — Showing total and comparative cost to the Government of estab- 
lishing plan for retiring employees, etc. — Continued. 





All employees. 


General employees. 




Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 
for all em- 
ployees over 
cost of es- 
tablishing 
Gillette bill 
(H. R. 22013) 
for all em- 
ployees. 


Cost of es- 
tablishing 
Gillett bill 
(H. R. 22013) 
for all em- 
ployees. 


Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for all em- 
ployees. 


Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 

for general 

employees 
over cost of 
establishing 

Gillett bill 
(H. R. 22013) 

for general 
employees. 


Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for general 
employees. 


Cost of es- 
tablishing 

Perkins bill 

(S. 1944) 
for general 

employees. 


46 years 


$918,052 

827,277 

735,221 

646,230 

560,782 

481,136 

407,756 

342,084 

284,093 

232, 472 

189, 890 

152,794 

121,568 

95,576 

74, 186 

56, 796 

42,844 

31,810 

23,210 

16,613 

11,648 

7,978 

5,333 

3,461 

2,176 

1,320 

768 

424 

225 

115 

51 

23 

6 


$531,120 

456,564 

390,112 

331,216 

279,343 

233,822 

194,383 

160,226 

130,920 

106,9^5 

84,924 

67,302 

52,701 

40,725 

31,009 

23,240 

17,106 

12,339 

8,704 

5,988 

3,997 

2,584 

1,604 

952 

533 

280 

134 

59 

23 

9 

3 


$1,449,172 

1,283,841 

1,125,133 

977,446 

840, 125 

714,958 

602,139 

502,310 

415,013 

339, 457 

274,814 

220,096 

174,269 

136,301 

105,195 

80,036 

59,950 

44,149 

31,914 

22,601 

15,645 

10,562 

6,937 

4,413 

2,709 

1,600 

902 

483 

248 

124 

54 

23 

6 


$820,240 

739,200 

657,001 

577,508 

500,626 

428,702 

362,504 

303,226 

250, 955 

205,432 

166,3.38 

133, 181 

105,. 381 

82,348 

63, 493 

48,258 

36,114 

26,576 

19,206 

13, 60S 

9, 4.32 

6,386 

4,212 

2,700 

1,677 

1,007 

581 

320 

171 

89 

42 

18 

6 


$21,892 

15,600 

10,841 

7,320 

4,784 

3,009 

1,812 

1,034 

553 

275 

126 

51 

18 

5 

2 


$842,132 


47 years 


754,800 


48 years 


667,842 


49 years 


584,828 


50 years 


505, 410 


51 years 


431,711 


52 years 


364,316 


53 years 


304,260 


54 years 


251,. 508 


55 years 


205, 707 


56 years 


166, 464 


57 years 


133,232 


58 years 


105,399 


59 years 


82,353 


60 years 


63,495 


61 years. . . . 


48,258 






36,114 


63 years 




26,576 






19,206 


65 years 




13,608 




9,432 






6,386 






4,212 






2,700 






1,677 






1,007 






581 






320 






171 






89 






42 






18 






6 













Mail carriers. 


Railway postal clerks. 




Excess cost 






Excess cost 








of establish- 






of establish- 








ing Perkins 






ing Perkins 








bill (S. 1944) 


Cost of es- 


Cost of es- 


bill (S. 1944) 


Cost of es- 


Cost of es- 




for mail 


tablishing 


tablishing 


for railway 


tablishing 


tablishing 




carriers over 


Gillett bill 


Perkins bill 


postal clerks 


Gillett bill 


Perkins bill 




cost of es- 


(H.R. 22013) 


(S. 1944) 


over cost of 


(H.R. 22013) 


(S. 1944) 




tablishing 


for mail 


for mail 


establishing 


for railway 


for railway 




Gillett bill 


carriers. 


earners. 


Gillett bill 


postal clerks. 


postal clerks. 




(H. R. 22013) 






(H.R. 22013) 








for mail 






for railway 








carriers. 






postal clerks. 








81,393,106 


$34,932,565 


$36,325,671 


$4,766,886 


$19,941,473 


$24,708,359 


Immediately 


789 


155,660 


156,449 


16,485 


242,571 


259,056 


1 year 


352 

515 

616 

758 

833 

1,070 

1,141 

1,500 

1,914 


187,591 
216,985 
245, 929 
273, 189 
293, 178 
310,974 
325.498 
345,575 
369, 189 


187,943 
217,500 
246,546 
273,947 
294, Oil 
312, 044 
326, 639 
347,075 
371,103 


16, 400 
16,647 
17, .533 
19,912 
20,834 
22,687 
24,865 
27,633 
29,965 


253,816 
264,282 
272,462 
287, 677 
296,803 
309,407 
327,901 
345, 708 
363,110 


270,216 


2 years 


280,929 




289,995 


4 years 


307,589 


5 years 


317,637 


6 years 


332,094 


7 years 


352,766 


8 years 


373,341 


9 years 


393,075 


10 years 


2,159 
2,653 
2,846 


392,640 
421,501 
456,427 


394,799 
424, 154 
459,273 


35,425 
40,035 
44,853 


384,545 
406,415 
430,421 


419,970 


11 years 


446,450 


12 years 


475,274 



176 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

TABI.E XXXI. — Showing total and ^■ompa'^ative cost to tlw Oovernmcat of estab- 
lishing plan for retiring employees, etc. — Continued. 



13 years . 

14 years . 

15 years . 

16 years . 

17 years. 

18 years . 

19 years . 

20 years . 

21 years . 

22 years. 

23 years . 

24 years . 

25 years . 

26 years . 

27 years . 

28 years . 

29 years . 

30 years . 

31 years. 

32 years . 

33 years . 

34 years . 

35 years . 

36 years . 

37 years . 

38 years . 

39 years . 

40 years . 

41 years. 

42 years . 

43 years . 

44 years . 

45 years. 

46 years . 

47 years . 

48 years . 

49 years . 

50 years . 

51 years. 

52 years . 

53 years . 

54 years . 

55 years. 

56 years . 

57 years . 

58 years . 

59 years . 

60 years . 

61 years. 

62 years . 

63 years . 

64 years . 

65 years . 

66 years . 

67 years . 

68 years . 

69 years . 

70 years . 

71 years . 

72 years . 

73 years. 

74 years. 

75 years . 

76 years . 

77 years. 

78 years. 



Mall carriers. 



Excess cost 
of establish- 
ing Perkins 
bill (S. 1944) 

for mail 
carriers over 
cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 
carriers. 



$3,157 

3,361 

3,991 

4,744 

4,550 

6,028 

7,013 

8,213 

10, 120 

12,559 

15,689 

20, 100 

25,237 

29, 099 

32,859 

36,263 

44,234 

46,288 

47,214 

46,975 

47, 062 

47,721 

48,613 

48,674 

50, 036 

49, 472 

48, 877 

47,566 

42,367 

42,717 

42,981 

43, 441 

44,656 

43,612 

40,704 

36,894 

33,277 

29,840 

26,622 

23,612 

20, 809 

18,217 

15,838 

13,654 

11,677 

9,895 

8,303 

6,883 

5,641 

4,564 

3,637 

2,847 

2,193 

1,656 

1,218 

875 



261 
161 
92 
48 
23 
9 
5 



Cost of es- 
tablishing 
Gillett bill 
(H.R. 22013) 
for mail 



539 

594 

643 

703 

770: 

832 

884 

930; 

977 

1,020 

1,052 

1,097 

1,125 

1,146 

1,161 

1,153 

1,142 

1,124 

1,100 

1,067 

1,031 

991 

945 

896 

843 

787 

730 

677 

-619 

559 

499 

439 

383 

332 

286 

244 

207 

174 

146 

120 



Cost of es- 
tablishing 
Perkins bill 
(S. 1944) 
for mail 
carriers. 



542 
597 



776 
839 
892 



036 

072 

122 

154 

178 

197 

197 

188 

172 

146 

114 

079 

040 

994 

946 

892 

836 

778 

720 

662: 

602 

542 

483 

426 

372 

322 

277 

237 

201 

169 

141 

117 

96 

78 

63 

50 

39 

30 

23 

17 

13 

9 

6 

4 

3 

2 



Railway postal clerks. 



Excess cost 
5f establish- 
ing Perkins 
bill (S. 1944) 
for railway 
postal clerks 
over cost of 
establishing 
Gillett bill 
; H.R. 22013) 
for railway 
postal clerks. 



61 
70 
77 
86 
96: 
105 
118 
128: 
140 
150 
160 
165 
170 
172 
174 
174 
172 
160 
166 
162 
157 
149 
142 
133 
124 
115 
107 
96: 

8?: 

78 
69 
61 
54 
47 
41 
35 
30 
25 
21 
18 
14 
11 



Cost of es- 
tablishing 
Gillett bill 

(H.R. 22013) 
for railway 

postal clerks 



5458,570 

479,561 

500, 459 

515,918 

531,292 

543,280 

557,003 

570,549 

586, 728 

597,524 

606,050 

608,220 

605,737 

600,264 

691,402 

580, 088 

566, 189 

545,903 

534,066 

498, 172 

472,593 

444,148 

415,981 

386, 429 

357,952 

328, 180 

298,121 

267, 646 

240, 074 

213,559 

188, 918 

166, 150 

146,239 

126,154 

108,846 

93,255 

79, 307 

66, 920 

55,917 

46, 468 

38,204 

31,101 

26, 072 

19,979 

15,746 

12,257 

9,418 

7, 125 

5,313 

3,893 

2,795 

1,963 

1,351 

901 

583 

362 

216 

122 

64 

31 

14 

5 

2 



Cost of es- 
tablishing 
Perkins bill 

(S. 1944) 
for railway 
postal clerks. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 177 

The difference in cost to the Government between establishing the 
Perkins and Gillett bills is graphically illustrated by the following 
chart : 



-< 
O 
is 

■< 

O CO 

as ** 

E-i C^ 

H S5 

CO t^ 



g 



















s 














i 


XJ 














h 


s 












y 


7 


*o 










X 


y 
J 


/ 


s 








^ 


y 


/ 




^f^ 


y 


/ 




■<.f 


f 






^ 


/ 




o^ 


^ 








"^ 


\ 


/ 


r 




, 






J^ 


V 


i 


V 










"N 


^ 

^ 


k 


\ 










S^ 




i 


A 










"> 






\ 


\ 
















^s^ 


^ 






i 

4 


1 




1 

*^1 




1 







74196°— S. Doc. 745, 61-3 12 



178 EETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 

The number and per cent of the total number of employees whose 
annuities under the Perkins bill would be reduced by the $600 limit 
provided under the Gillett bill are shown in the following table : 

Table XXXII. — Showing, by classes, the per cent of employees whose annuities 
would 6e reduced hy the $600 limit provided by the Gillett bill (H. R. 22013). 





Total nura- 

berof 
employees. 


Employees whose 
annuities would 
be reduced by 
the $600 limit. 




Number. 


Per cent 
of total. 


All classes 


170,228 


50,619 


29.7 






General employees 


94, 403 
61,931 
13,894 


40, 197 
6,173 
4,249 


42.6 


Mail carriers 


10.0 




30.6 







CALCULATION OF MAXIMUM COST FOR SERVICE IN THE DISTRICT OF 

COLUMBIA. 

The maximum cost, the first year, of putting the plan into opera- 
tion in the District of Columbia alone would be much less than if 
extended to the employees throughout the country, and at the same 
time those branches of the service where superannuation is greatest 
and the need of a retirement measure most keenly felt would be 
benefited immediately. The cost of paying annuities for back serv- 
ices to employees in the District of Columbia is shown in Table 
XXXIII to be about $400,000 [$396,060] for the first year. 

Table 'KKKlll. ^Showing estimate of the maximum cost the first year of annu- 
ities equal to 1.5 per cent of salary for each year of service for employees in 
the District of Columbia. 



Period of service. 



Years, 
(a) 



Average 
years. 

(b) 



Number 
of em- 
ployees. 

ffi) 



Salary. 



Total, 
(d) 



Average, 
(e) 



Annuity. 



Total 
(see note). 

(0 



Average. 
(g) 



Under 5 

5 to 9 

10 to 14 

15 to 19 

20 to 24 

25 to 29 

30 to 34 

35 to 39 

40 and over. 



12 

45 
76 
61 
84 

117 
86 
75 

176 



$14, 180 
45,300 
77, 920 
63,000 
101,000 
144, 260 
114,140 
100. 740 
233, 940 



$1, 182 
1,007 
1,025 
1,033 
1,202 
1,233 
1,327 
1,343 
1,329 



$851 
4,756 
14, 026 
16,065 
33, 330 
58,425 
54, 787 
55,911 
157,909 



$71 
106 
185 
263 
397 
499 
637 
745 
897 



All periods. 



732 



894,480 



1,222 



396,060 



Note.— The annuities shown in column (f) are equal to 1.5 per cent of salary for each year of service; 
bX1.5Xd 
100 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 179 

This table is less accurate than the other tables given in this 
report, but its lesser accuracy is a point in favor of its conservatism. 
It is based on Table 72 in Census Bulletin 94, which shows the em- 
ployees in the executive civil service in the District of Columbia 
classified by compensation, age, and period of service. The lesser 
accuracy of Table XXXIII is due to the fact that Table 72 includes 
unclassified as well as classified employees, the total number of 
employees in the District being given as 25,351 as against 23,254 
classified employees. The employees shown in Table 72 are given in 
five-year age groups, which also makes the result somewhat less 
accurate than if the number at each age had been stated. The sum 
of $400,000 would, however, seem to be a safe maximum figure, 
considering all the allowances that must be made for the inclusion 
of unclassified members of the service, the overestimation due to 
computations based on present rather than average salaries, and the 
retention of numerous individuals in the service past the age of 
retirement. 

This approximate figure of $400,000 as the maximum annual cost 
of inaugurating a retirement measure in the District of Columbia 
is interesting, since it has been estimated that the loss to the Govern- 
ment by reason of superannuation in the District is approximately 
$400,000 a year. In a report on superannuation in the civil service, 
made by a special committee of the National Civil Service Reform 
League in 1906, the Civil Service Commission is quoted as authority 
for the statement that those over 70 years of age do about three- 
quarters of the maximum quantity of work performed by a thor- 
oughly efficient employee, and that the loss to the Government 
through superannuation in the departments at Washington amounts 
therefore to about $400,000 a year.^ 

HOW THE COST OF PUTTING PLAN INTO OPERATION MAY BE MET. 

Two ways of paying annuities on services rendered prior to the 
adoption of the plan have been suggested. The first two bills intro- 
duced into Congress covering this plan provided that annuities pay- 
able for services rendered prior to the passage of the bill should be 
paid by the Secretary of the Treasury from any money in the Treas- 
ury not otherwise appropriated. The third bill makes provision 
for payment of annuities for back services out of a fund created by 
deductions from the salaries of new entrants and the salaries of those 
promoted, but this provision has been discarded by the House com- 
mittee as unfair to the younger employees, and is no longer proposed. 
The bill discussed in this report provides for the payment of annu- 

» See Special Report of United States Civil Service Commission to the President, p. 3. 



180 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

ities for back services by the Government. Section 11 reads as 
follows: 

Sec. 11. That beginning with the first day of July next following the pas- 
sage of this act every employee to whom this act applies shall be entitled, on 
reaching the retirement age, or having already passed that age, to retire from 
the service under the provisions hereinbefore contained, and also, in addition 
to the annuity herein provided for by his own contributions from his salai'y, 
to receive from the United States during the remainder of his life an annuity 
equal to one and one-half per centum of his total compensation during service 
prior to the taking effect of this act ; and the Secretary of the Treasury is 
hereby authorized and directed to pay such annuity quarterly, upon proper 
certification of the retirement of such employee by the appointing ofiicer under 
whom he last served. Annuities from the United States for the period of 
service prior to the passage of this act shall be payable only on condition that 
the employee remains in the service until he reaches the age of retirement : 
Frovidecl, however. That employees of group one may receive the annuity 
granted by this section on retirement at the age of sixty years or thereafter. 
On the death of the employee the payment of annuities provided for by this 
section shall cease and determine. Annuities payable by the United States 
on salaries in excess of two thousand five hundred dollars per annum shall be 
based upon an annual salary of two thousand five hundi-ed dollars. 

This is followed by a section which makes provision for reckoning 
the period of service prior to the passage of the bill. Section 12 
reads as follows: 

Sec. 12. That the period of service upon which the annuity to be paid by 
the United States is based shall be computed from original employment, 
whether as a classified or unclassified employee, and shall include periods of 
service at different times and service in one or more departments, branches, or 
independent offices of the Government, the Signal Corps prior to July first, 
eighteen hundred and ninety-one, and the general service in or under the War 
Department prior to May sixth, eighteen hundred and ninety-six. 

Plan Can Be Put into Operation Without Additional Appropriation by 

Government, 

The study and discussion which have been given to the subject in 
recent years seem to have convinced those interested that the only 
way to put the plan into operation is by means of appropriations 
from the Government. The following arguments have been used to 
discredit the suggestion that the annuities for back services should 
be paid by any form of taxation on the employees. 

(1) That the plan is constructed primarily for the benefit of the 
public service. The removal of superannuated employees is more to 
the interest of the Government than to the interest of the clerks as 
a bodj^ 

(2) That the Government was the beneficiary of all services 
rendered prior to the adoption of the plan, and if anyone is charged 
for such services it should be the beneficiary. 



KETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 181 

(3) That an appropriation for this purpose puts the Government 
into position to act logically in the matter of readjusting salaries in 
the Government service. It has long been contended that the average 
salary of $948 a year paid by the Government ^ is inadequate in these 
days of high prices. Salaries can not be consistently advanced, how- 
ever, while there are a large number of worn-out employees in the 
service already receiving more than they earn. Expulsion from the 
service and readjustment of salaries through demotion are not satis- 
factory solutions for those who are superannuated but needs must 
continue at their desks, for those who are efficient but underpaid, 
or for the Government who is overpaying some and underpaying 
others. 

(4) That the necessity for appropriations from any source is only 
temporary. 

(5) That the appropriation of a reasonable sum for only 50 years 
is an economy and not an expense to the Government, since it removes 
from the service the evil of superannuation, which under the present 
system is fully as costly as the establishment of the proposed plan 
and besides is a permanent and probably growing expense. 

(6) That "practically nothing is asked of the Government toward 
the support of a retirement plan except a chance to establish one at 
the expense of the employees themselves. 

(7) That it would be very unfair to force the younger employees 
to pay for annuities on the past services of their elders and, at the 
same time, contribute to their own retirement. 

Opposition to the proposal that the plan shall be put into opera- 
tion by means of appropriations from the Government is only heard 
on the ground that the people of the country may look on such appro- 
priations with disfavor. It is doubtful, however, if there would be 
opposition from those who understood the need for the measure, and 
the nature of the proposed plan. 

As suggested on page 33, the proposal that the plan be put into 
operation by means of appropriations from the Government does not 
necessarily mean that these appropriations will be in addition to the 
present appropriation for salaries. It is difficult to state with abso- 
lute precision just what the saving to the Government would be if 
the aged employees who do not fully earn their salaries were retired, 
for the reason that efficiency records of work performed by these 
aged people are not generally kept throughout the service. Such 
statistics as are available would seem to indicate that the amount lost 
the Government through the inefficiency of the aged about equals the 
cost of superannuation. 

As noted on page 13, an effort was made a few years ago by the 
Civil Service Commission and the National Civil Service Reform 

1 See Census Bulletin 94, p. 32. 



182 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

League to determine what loss the Government was then sustaining 
through superannuation. Schedules were prepared and sent out to 
the various departments, and from the returns made on these schedules 
it was found that the loss in the District of Columbia amounted to 
approximately $400,000 a year. Assuming that employees at various 
ages possessed the same degree of efficiency in the District of Colum- 
bia and elsewhere, it was found, by applying the percentages obtained 
for the District to the employees elsewhere, that the Government wa« 
sustaining an annual loss in the District and elsewhere of $1,200,000. 
This estimate was made in 1906, when the service was considerably 
smaller than it is now, in 1911, and, of course, much smaller than it 
will be in future years. It is obvious that unless a retirement system 
is adopted the actual number of superannuated employees in the serv- 
ice must increase with the growth of the service. It is obvious also 
that unless the growth of the service continues at no less rate here- 
after than it has in the past the proportion of superannuated to active 
employees must also increase. That the service is likely to continue 
to grow may be assumed without argument, but that it will continue 
to grow at the rapid rate of the past 30 years is debatable. The 
present superannuated employees represent the residue of the active 
service of 30 or 40 years ago. The superannuated employees 30 or 40 
years hence will represent the residue of the present active service. 
Thirty or forty years ago the service was composed of not more than 
30,000 employees. To-day the classified service is composed of about 
200,000 individuals. If the residue of 30,000 employees of 30 or 40 
years ago is now costing the Government $1,200,000 annually, then the 
cost of superannuation 30 years hence may fairly be estimated to be 
as 30,000 is to 200,000, or nearly seven times as great as at present. 
This estimate is, of course, based on the assumption that the rate of 
separation from the service by resignation and death will continue 
the same, which would seem to be a fair assumption, and perhaps 
more than fair, since commercial opportunities outside of the service 
are likely to be no greater than they have been in the past, and, there- 
fore, to attract away no greater proportion of the service, and the 
rate of mortality at the ages up to about 70 years is known to be 
steadily decreasing. On this basis the cost of superannuation 30 or 
40 years hence would be approximately $8,000,000 annually, or more 
than twice the maximum amount required to be appropriated in any 
one year for back services under the Perkins bill. 

This phase of the problem was of much interest to the Hon. Frank- 
lin MacVeagh, Secretary of the Treasury, and in order to determine 
whether the cost of superannuation in 1910 was not greater than the 
amount that would have to be appropriated under a fair contributory 
system, he undertook, in the spring of 1910, to ascertain how many 
young clerks could be employed out of the residue of present appro- 
priations for salaries if the old clerks were first paid annuities out 



HETrREMENl' O^P SIJPEfiAlSrlSrtJATEI) CtVIL-SEEVICE EMPLOYEES. 183 

of those appropriations on the scale proposed under the Perkins 
bill (S. 1944). Since the annuities for past services would be 
paid wholly from public funds, it seemed to him entirely fair to 
place a minimum and a maximum on the amount that would be given 
to any one individual. He accordingly had prepared a statement 
showing the amount of money that would be required the first year 
to pay annuities under the Perkins bill, but with a minimum of $300 
and a maximum of $600, with a minimum of $360 and a maximum of 
$720, and a minimum of $360 and a maximum of $1,000. The 
following table shows that the cost under the respective scales is 
$146,116, $168,080, and $194,308. The number of younger clerks 
under the respective scales that could be employed at $900 a year by 
expending for that purpose the difference between those amounts and 
the present salaries of these aged employees is as follows: 282, 258, 
and 229. 



Statistics relative to clerks in the Treasury Department 70 years of age and over. 



Total number 

Average age 

Total of present annual salaries- 
Average annual salary 

Average years of service 



300 

73§ 

$400, 559 

$1, 335 

32 



Aggregate salaries paid $12, 727, 750 

One and one-half per cent of aggregate salaries $190, 916 



Present salaries 

Annuities (minimum, 



; maximum, $600). 



Balance available for clerk hire- 
Number that can be employed at $900- 



Present salaries 

Annuities (minimum, $360; maximum, $720). 

Balance available for clerk hire 

Number that can be employed at 



Present salaries 

Annuities (minimum, $360; maximum, $1,000). 

Balance available for clerk hire 

Number that can be employed at $900 



$400, 559 
$146, 116 

$254, 443 
282 

$400, 559 
$168, 080 

$232, 479 

258 

$400, 559 
$194, 308 

$206, 251 
229 



Ages of clerks in Treasury Department 70 years of age and over. 



No. 


Age. 


No. 


Age. 


1 


95 


8 


78 


1 


94 


12 


77 


2 


86 


19 


76 


2 


84 


25 


75 


1 


83 


39 


74 


2 


82 


26 


73 


7 


81 


43 


72 


4 


80 


37 


71 


H 


79 


60 


70 



184 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

As between the three different scales of annuities, the one giving 
a maximum of $720 a year would be the most expedient. Annui- 
ties from $300 to $600 would be inadequate, and the number of clerks 
that could be employed with the residue of the appropriations after 
paying these annuities would be more than is really necessary. An- 
nuities from $360 to $720 would be much more satisfactory, and the 
258 young clerks that could be secured under this arrangement would 
manifestly be of greater value to the department than the present 300 
aged ones. Annuities with a maximum of $1,000 would greatly 
relieve the difficulty of removing inefficient employees in the higher 
grades, but the number of clerks (229) that could be employed with 
the residue of the present salaries is so small as to raise the question 
whether the departments would not be compelled to ask for addi- 
tional appropriations to increase their forces if this scale were 
adopted. 

Similar investigations were made at the request of the Secretary of 
the Treasury in representative bureaus of the Post Office Department 
and the Department of Commerce and Labor, and indicate th^t aged 
clerks can be retired on the basis suggested and younger clerks em- 
ployed to take their places and do their work, and that not only can 
these two things be done at the present cost of employing the older 
clerks, but that an actual saving of money would be effected from the 
beginning. 

In three divisions of one of the departments there are 17 employees 
receiving $24,940 a year in salaries, or an average of $1,467 each, who 
are rated as performing services worth slightly less than 50 per cent of 
their salaries. These 17 clerks could be retired under the plan outlined 
above on 48 per cent of their average pay, or say $700 a year each, 
and leave $767 a year each, or $13,040 for the employment of younger 
clerks at the lower grades. As these people are only performing 50 
per cent of what is considered a fair day's work, it may be stated with 
accuracy that with these aged clerks retired on annuities aggregating 
$11,900 it would be possible with the balance of $13,040 to obtain 
better and more efficient service by the employment of, say, 13 young, 
energetic clerks, than the Government now has with the 17 old ones. 

It should be noted, in this connection, that the mortality among 
these aged employees is very high, and as they died off the annuities 
thus released could be used to increase salaries. 

From the foregoing it is apparent that the establishment of this 
plan along the lines of the Perkins bill, but with minimum and maxi- 
mum limitations, as suggested by the Secretary of the Treasury, on 
the amount of annuities on services rendered prior to the adoption 
of the plan, would not only cost the Government nothing, but would 
probably result in a small saving even the first year, and tlSiat this 
saving would steadily increase from year to year as the employees' 



RETIREMENT OP SUPEEAlSrNUATED CIVIL-SERVICE EMPLOYEES. 185 

savings accumulated for their ov/n retirement, until finally the cost 
of superannuation to the Government would be nothing. 

COST OF ADMINISTERING THE PLAN. 

Besides the cost of putting the plan into operation, the cost of ad- 
ministering it needs to be considered. It is believed that a small 
annual appropriation will be sufficient for this purpose. Section 17 
of the proposed bill, which makes provision for that need, reads as 
follows. 

Sec. 17. That for the clerical and other service and all other expenses neces- 
sary in carrjang out the provisions of this Act during the fiscal year nineteen 
hundred and ten, including salaries and rent in the city of Washington, there 
is hereby appropriated the sum of twenty thousand dollars out of any money 
in the Treasury not otherwise appropriated, to be available until expended. 

It is estimated that the savings accounts of the 170,228 employees 
included in the estimates of cost for the entire classified service could 
easily be taken care of by 26 bookkeepers. This estimate takes into 
account a most liberal number of Sundays, holidays, days of annual 
leave and sick leave, and presupposes that the Government book- 
keepers would not average more than 300 entries a day and keep their 
accounts balanced. (If the plan is limited to 23,254 classified em- 
ployees of the District only four bookkeepers would be required to 
do the work.) The computation is as follows: 

Bookkeepers for entire service. 

Number of employees in service 170, 228 

Number of entries per year for each employee (12 monthly deposits, 
and the equivalent of 4 entries to cover crediting of interest, 
balancing accounts, and statement work) 16 

Total number of entries per year for entire service (170,228X16)— 2,723,648 

Number of days in year 365 

Less Sundays and holidays 60 

Less days of sick and annual leave 40 

100 

Working days per year 265 

Entries per day for each bookkeeper 400 

Entries per year for each bookkeeper (265X400) 106,000 

Number of bookkeepers for entire service (2,723,648-^106,000) 25.7 

Bookkeepers for District of Columbia. 

Number of employees in service 23, 254 

Number of entries per year for each employee (12 monthly deposits, 
and the equivalent of 4 entries to cover crediting of interest, 
balancing accounts, and statement work) 16 



186 RETIREMENT OF SUPERAlsrISrUATED ClVlL-SERVICE EMPLOYEES. 

Total number of entries per year for service in the District 

(23,254X16) . $372,064 

Number of days in year 365 

Less Sundays and holidays 60 

Less days of sick and annual leave 40 

100 

Working days per year 265 

Entries per day for each bookkeeper 400 

Entries per year for each bookkeeper (265X400) 106,000 



Number of bookkeepers for service in District (372,064-^106,000) ___ 8. 5 

The appropriation of $50,000 to cover the cost of administration 
included in the first " Gillett bill " is about correct as an estimate 
of that cost for the entire classified service. Twenty-six bookkeepers 
at an average annual salary of $1,400 would cost $36,400, and the 
other expenses of administration, including the salary of the head 
of the office and his assistants, would probably consume the balance 
of $13,600. 

For conducting the plan in the District of Columbia alone the 
sum of $20,000 a year would suffice. Four bookkeepers, at $1,400 
each, would cost $5,600. The other expense would not be much less 
for the District of Columbia than for the entire service, so that it 
is not safe to estimate the cost at much less than $20,000 a year. 

These estimates would seem to be all on the side of safety when 
compared with statements made by various savings-bank officials who 
were consulted on the subject. 

Mr. Andrew Mills said that the Dry Dock Savings Institution of 
New York, of which he is president, employs eight bookkeepers, with 
salaries ranging from $1,200 to $2,500 a year, to keep its 70,000 
accounts. They make in all approximately 197,000 entries, compute 
the interest twice a year, enter the interest, and balance the ledger. 
This means a daily everage of 400 items for each bookkeeper. Twice 
a year about five extra men are employed for a week to assist in post- 
ing the interest. Mr. Mills said that in his judgment the Govern- 
ment should be able to handle the accounts of 150,000 employees, 
each of whom requires one cash entry a month and an interest credit 
twice a year, with the help of 12 bookkeepers of the class employed 
by his bank. 

Mr. William E. Knox said that the Bowery Savings Bank, New 
York, of which he is comptroller, employs 12 bookkeepers to handle 
their 151,000 accounts, which represented in 1907, 346,000 transactions. 
This means a daily average of about 500 items for each bookkeeper. 

Mr. Pierre Jay, formerly bank commissioner of Massachusetts, was 
of the opinion that it would cost from $30,000 to $35,000 annually, so 



RETIREMENT OF SUPER AiSTNUATED CIVIL-SERVICE EMPLOYEES. 187 

far as clerical and incidental expenses are concerned, to collect and 
administer the Government retirement fund. He said that about 
one-third of the salary expense shown in his report on savings banks 
of Massachusetts is chargeable to salaries of officers and the other 
two-thirds to salaries of clerks. 

Emphasis should be laid on the fact that the labor involved in 
keeping the accounts of a savings bank is much greater than the labor 
that would be required to keep the accounts of the Government em- 
ployees. In the savings bank the entries are made at irregular inter- 
vals and are for varying amounts, whereas in the Government's case 
the entries would be made at regular intervals and for uniform 
amounts. The computation of interest credits would accordingly be 
simplified also. 



CHAPTEE V. 



PROVISIONS FOR INVESTMENT OF RETIREMENT FUND. 

Provision for the investment of the fund created under this plan 
by the savings of the civil service employees is made in section 2 of 
the proposed bill which reads as follows : 

Sec. 2. That the amounts so deducted and withheld from the salary, pay, or 
compensation of each employee shall be deposited in the Treasury of the United 
States and shall be credited, together with interest at three and one-half per 
centum per annum, compounded annually, to an individual account of the 
employee from whose salary, pay, or compensation the deduction is made. The 
moneys so deducted and the income derived therefrom may from time to time 
be deposited in savings banks designated by the Secretary of the Treasury for 
that purpose: Provided, That the savings banks receiving such deposits shall 
pay interest thereon at a rate of not less than three and one-half per centum 
per annum, compounded annually. For the safe-keeping and prompt payment 
of the money deposited with them the Secretary of the Treasury shall require 
the savings banks to give satisfactory security, by the deposit of bonds of 
the United States, bonds or other interest-bearing obligations of any State of 
the United States, or any legally authorized bonds issued for municipal pur- 
poses by any city or town in the United States which has been in existence as 
a city or town for a period of twenty-five years, and which for a period of 
ten years previous to such deposit has not defaulted in the payment of 
any part of either principal or interest of any funded debt authorized to be 
contracted by it, and which has at such date more than twenty-five thousand 
inhabitants, as established by the last national census, and whose net indebted- 
ness does not exceed five per centum of the valuation of the taxable property 
therein, to be ascertained by the last preceding valuation of property for the 
assessment of taxes; or any legally authorized bonds issued for municipal pur- 
poses by any city or town in the United States which has been in existence as 
a city or town for a period of twenty-five years, and which for a period of ten 
years previous to such deposit has not defaulted in the payment of any part 
of either principal or interest of any funded debt authorized to be contracted 
by it, and which has at such date more than two hundred thousand inhabit- 
ants, as established by the last national census, and whose net indebtedness 
does not exceed seven per centum of the valuation of the taxable property 
therein, to be ascertained by the last preceding valuation of property for the 
assessment of taxes. In this clause the words " net indebtedness " means the 
Indebtedness of any city or town, omitting debts created for supplying the 
inhabitants with water, and debts created in anticipation of taxes to be paid 
within one year, and deducting the amount of sinking funds available for the 
payment of the indebtedness included. The Secretary of the Treasury shall 
accept, for the purposes of this act, securities herein enumerated in such pro- 
188 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 189 

portions as he may from time to time determine, and he may at any time 
require the deposit of additional securities, or require any banii to change the 
character of the securities already on deposit. It shall be the duty of the 
Secretary of the Treasury to obtain information with reference to the value 
and character of the securities authorized to be accepted under the provisions 
of this section, and he shall from time to time furnish Information to savings 
banks as to such bonds as would be accepted as security. When consistent 
with the best interests of the fund created by this act, the Secretary of the 
Treasury shall distribute the deposits herein provided for, as far as practicable^ 
equitably between the different States and sections. 

If, for any reason, the Secretary of the Treasury shall not be able to make 
satisfactory arrangements with savings banks for all of the funds, then he may 
invest the balance in any of the aforementioned securities. 

The moneys deducted from salaries and the income derived therefrom shall 
be held and deposited or invested, as above described, by the Secretary of the 
Treasury until paid out as hereinafter provided. Any deficiency in the fund 
hereby created to carry out the provisions of this act shall be paid out of any 
money in the Treasury not otherwise appropriated. 

For the purpose of aiding the Secretary of the Treasury in depositing and 
investing the funds created by this act a board of investment is hereby created, 
composed of the Treasurer of the United States, the Comptroller of the Cur- 
rency, the chief of the ofiice created by the provisions of this act, and two 
persons to be designated by the President from among the employees of the 
classified civil service. The members of the board of investment shall be 
sworn, and shall hold ofiice until others are appointed and qualified in their 
stead. 

TWO PROVISIONS FOR INVESTMENT OF FUND. 

It will be seen from this that the bill provides for the investment of 
the retirement fund in two ways : 

(1) Indirectly, by deposit in savings banks meeting certain require- 
ments. 

(2) Directly, by investment in a certain limited class of securities. 
The bill provides that the banks receiving these funds must pay 

not less than 3^ per cent interest on the deposits, and that they must 
give Federal, State, or municipal bonds as security for these deposits. 
Failing fo make satisfactory arrangements with savings banks for 
all of the fund, the Secretary of the Treasury is authorized to invest 
the balance directly in the aforementioned securities. 

NOT FEASIBLE AT PRESENT TO DEPOSIT FUND IN SAVINGS BANKS. 

Several men prominent in savings-bank circles have been asked for 
their opinion of the investment clause in the proposed bill. The 
consensus of opinion seems to be that the provisions in the bill for 
handling the funds are theoretically sound, but that one of them is 
not at present practicable. While there is no good reason for chang- 
ing the two main provisions — that the funds be deposited first in 
savings banks, and, secondly, invested in a limited class of securi- 
ites — the fact should be brought out that the first provision is not 



190 RETIEEMENT OP SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 

likely to be of much service. Under present conditions it would not 
be possible to deposit any large amount of the retirement fund in the 
savings banks of the country. 

Differences between eastern and tvestern savings banks. 

In considering the subject it is necessary to bear in mind several 
important differences between the savings banks of the East and 
those of the West. Generally speaking, the savings banks of New 
York and New England may be put in one class and those of the 
rest of the country in another. Those of the former class operate 
under the strictest laws governing such institutions. The rate of 
interest which they pay is usually 3| or 4 per cent, whereas the savings 
banks of the West seldom pay more than 3 per cent. The savings 
banks of the East are generally mutual banks, and the profits of their 
investments are distributed among the depositors, whereas the sav- 
ings banks of the West are more often the property of stock com- 
panies and are run mainly for the profit of the stockholders. 

These differences in bank administration would prevent the wide- 
spread acceptance of the Government's superannuation fund by the 
savings banks of the country. The provision in the bill that 3^ per 
cent interest must be paid on the clerks' savings would exclude the 
fund from the majority of western banks, because they are unwilling 
to guarantee that rate of interest. On the other hand, the eastern 
banks paying 4 per cent interest on deposits could not accept the fund, 
because the bill provides that savings banks receiving the employees' 
savings must give satisfactory security in the shape of United States, 
State, or municipal bonds, or other stipulated interest-bearing obliga- 
tions. The New York and Massachusetts laws prohibit the prefer- 
ring of depositors. 

One practical objection to the provision in the bill that the em- 
ployees' savings be deposited in savings banks is the fact that the 
deposits would have to be received in the names of the individual 
depositors. Under existing laws they could not be accepted as a 
lump deposit from the Government. This requirement would neces- 
sitate considerable accounting, and constitutes in the minds of some 
bank officials, though not of all, an objection to the acceptance of the 
employees' savings. Also the limited amount allowed individual 
depositors would make it impossible for some banks to accept the 
savings of the higher-salaried employees for the full period of ac- 
cumulation. Altogether, it seems plain that the greater portion of 
the Government employees' savings could not now be deposited under 
existing laws in savings banks, but would have to be invested in the 
securities named in the bill. 



m 



UETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 191 
INVESTMENT OF FUND SHOULD BE RESTRICTED TO PUBLIC SECURITIES. 

Although it does not appear feasible to deposit any large amount of 
the retirement fund in savings banks, the officials consulted were 
agreed in thinking that the securities in which it is invested should be 
limited to those acceptable to the New York and New England sav- 
ings banks, with the exception of railroad bonds, real estate, and 
notes secured by personal indorsement. The liability of loss to the 
employees, if the investment of the fund is limited to Federal, State, 
and municipal bonds, they believe to be negligible. Mr. Andrew 
Mills, president of the Dry Dock Savings Institution, of New York, 
stated that during the past 30 years that institution had not lost a 
dollar through securities of that class, although it had had an average 
of $12,000,000 invested in that way. The nature of the retirement 
fund, which would be made up of the savings of a large body of 
people, makes the propriety of limiting its investments to the best of 
savings-bank securities hardly debatable. 

SAVINGS-BANK INVESTMENTS. 

Savings banks are defined by Hamilton as " institutions established 
by public authority, or by private persons, in order to encourage 
habits of saving by affording special security to owners of deposits, 
and by the payment of interest to the full extent of the net earnings, 
less whatever reserve the management may deem expedient for a 
safety fund; and in furtherance of this purpose bank offices are 
located at places wdiere they are calculated to encourage savings 
among those persons who most need such encouragement." ^ 

According to the same authority, a savings bank is distinguished 
from an ordinary commercial bank in several ways. Its object is to 
promote thrifty habits among the laboring classes and to increase 
their resources. Its first concern, therefore, is safety of the deposits, 
its earnings being a secondary consideration. As its directors and 
managers have no special financial interest in the returns, the methods 
are therefore extremely conservative. A commercial bank, on the 
contrary, is primarily a money-making institution, run in the interests 
of stockholders, the managing officials being often heavily interested 
in the stock. They want safe investments, but there is a constant 
temptation to waive considerations of safety in the interest of larger 
net returns to stockholders. Commercial banks discount paper and 
are tempted to take risks in speculation. Savings banks do not, but 
invest their deposits in public securities or in loans secured by real- 
estate mortgages. 

An earlier writer, J. Howard Van Amringe, says that banks of issue 
and discount have only one point in common with savings banks, and 

1 See Savings and Savings Institutions, by James H. Hamilton, p. 161. 



192 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

that is the receipt of deposits. He emphasizes the difference still 
more by declaring that the former exist for the convenience of the 
rich, the latter for the benefit of the poor. The poor he defines as 
those who have no invested capital. The charter for the first savings 
bank in New York State was granted on the plea of the Ncav York 
Society for the Prevention of Pauperism.^ 

It seems proper, therefore, in discussing the investment of the fund • 
that will be created from the employees' savings, to emphasize the 
fact that the legal restrictions placed upon the investment of savings 
bank funds vary greatly in different States of the Union. Some of 
the States have enacted laws which are very strict and conservative, 
properly safeguarding the interests of the depositors, while others 
allow so-called " savings banks " to do business in a loose, unsafe way 
that is directly contrary to the traditional spirit of savings institu- 
tions. This abuse is well described in the following quotation: 

The stock savings banks are numerous in Western and Southern States, and, 
in addition to being institutions conducted for the benefit of shareholders, have, 
with but few exceptions, little to distinguish them from ordinary commercial 
banks, possessing all the powers and privileges of such institutions, and differ- 
ing only in the added privilege of accepting savings deposits. Some of these 
savings deposits, too, are held subject to check, thus practically nullifying any 
added security that a savings institution is supposed to give. Again, in in- 
stances, particularly in the Western States, the only apparent difference 
between a savings bank and a State bank, other than the name and the statute 
under which the organization may have been effected, rests solely in the now 
obsolete privilege of issuing currency — the State bank still nominally possess- 
ing that right which is denied to the savings bank.^ 

At present the States which regulate most carefully the activities of 
their savings banks are New York, Massachusetts, Connecticut, and 
then, perhaps, Vermont, Maine, and New Hampshire. The result is 
that savings bank failures are not often heard of in these States. 

The number of savings banks that have failed under the Massachu- 
setts law during the last 72 years is shown in the following tabular 
statement, which is taken from the annual report for 1906 of the 
Hon. Pierre Jay,^ bank commissioner of the Commonwealth of Massa- 
chusetts. 

1 See Life Assurance and Savings Banks, a lecture by J. Howard Van Amringe, New 
York, 1872. 

2 See Savings Banks and Safe Securities, by J. G. Dater (1898), p. 11. 
* Now vice president, Bank of the Manhattan Company, of New York. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 193 



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194 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

It will be seen from the above that the principal causes of the 
savings-bank failures in Massachusetts have been unwise investments 
in real estate/ bad management, and the defalcation of bank officials. 
It will be noted, however, that the terms of the proposed law do not 
permit investment of the retirement fund in real estate, bu^ restrict 
it to investment in public bonds alone. 

PUBLIC BONDS SAFE INVESTMENTS. 

A bond may be defined as follows: "An instrument by which a 
government, municipality, or corporation contracts and agrees to 
pay a specified sum of money on a given date (sometimes reserving 
the right for earlier payment) , the bond itself being a coupon-bearing 
(or registered) note under seal ; the coupons representing the quarterly, 
semiannual, or annual interest, as the case may be, at a fixed rate." '• 

The strength and security of Federal, State, and municipal bonds as 
investments rest on the fact that they are based primarily on the 
power of taxation, although they themselves are usually exempt from 
taxation. 

: FEDERAL BONDS. 

The bonds of the United States Government have been issued at 
various times to cover the national debt. As investments they are 
secured by the national credit and the national honor. As the Ameri- 
can people have shown themselves to be essentially a debt-paying 
people, their promise to pay is regarded as among the most unimpeach- 
able securities in the markets of the world. It has been said that " the 
Government of the United States enjoys to-day the proud distinction 
of having outstanding bonds bearing the lowest rate of interest at 
which bonds have been issued by any nation, and, furthermore, its 
bonds are selling in the market at a price which indicates that its 
credit is not surpassed by that of any other nation." ^ 

VARIOUS ISSUES OF FEDERAL BONDS. 

The good credit of the Nation began with the foundation of the 
Government and is largely due to the fine understanding and high 
ideals of Alexander Hamilton, first Secretary of the Treasury, who 
persuaded the new Government not to repudiate the colonial debts, 
amounting to $72,775,895, but on the contrary to assume them. The 
people of the country have ahvays shown themselves eager to pay 
a public debt and willing to submit to heavy taxation to do so. By 
1812 the national debt Avas down to $45,000,000. The w^ar of 1812 
increased it, so that in 1816 it amounted to $127,334,933, but in 1835 

1 See Money and Investments, by Montgomery Kollins, p. 44. 

2 See Memorandum Concerning United States Bonds, revised to Oct. 1, 1902, prepared by 
Fisk and Robinson, p. 18. 



RETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 



195 



it was all paid. The Mexican War piled it up again so that in 1851 
it amounted to $68,304,796. By 1857 it was down to only $28,699,831. 
Several Indian wars increased it to $98,580,873 by 1861. 

At the opening of the Civil War the Treasury was empty and the 
national credit reduced to a 12 per cent basis. All kinds of borrowing 
followed. Over 20 different forms of obligations were issued, bearing 
rates of interest varying from 7^^^ per cent down to nothing, and 
with maturities of from 30 days to 40 years. The expedient most 
criticized was the issue of legal-tender notes. There were several 
great war loans, all of which the people of the country floated with 
alacrity. One was the 6 per cent five-twenty year loan of 1862, issued 
in denominations from $50 to $10,000. Another great war loan was 
the seven-thirties of 1864 and 1865. The maximum of public debt was 
reached August 31, 1865, and amounted to $2,844,649,626, against 
which there was only $88,218,055 in the National Treasury. The war 
being over, however, the Nation began at once to recover financially, 
as well as in every other way, from the effects of the struggle. In 
1879, specie payments were resumed, and by 1893 the debt had fallen 
to $1,545,985,686.13, with a balance of $778,604,339.28 in the Treasury. 
In 1894, however, on account of currency laws which made it neces- 
sary to maintain the parity of various forms of currency with gold, 
an increase in the gold reserve was secured through two sales of 5 
per cent bonds, of $50,000,000 each. In 1895 the Government sold 
$62,000,000 of 4 per cent bonds redeemable after 1925, and in 1896, 
$100,000,000 more of 4 per cent bonds of 1925. In 1898, the Avar with 
Spain made necessary an issue of 3 per cent ten-twenty year bonds 
amounting to $198,792,660. After the war the Government had 
large revenues, and the process of debt-paying began again. The 
refunding act of 1900 provided for the refunding of the threes, the 
fours of 1907, and the fives into new 2 per cent 30-year gold bonds. 
Upward of $646,000,000 have thus been converted. It will be seen 
from the following tabular statement that these consols of 1930, bear- 
ing 2 per cent, constitute approximately 70 per cent of the interest- 
bearing national debt. The Panama Canal loans, negotiated in 1906 
and 1908, called for issues of 2 per cent 10-year bonds. The principal 
Government issues now outstanding, all of which date since the year 
1895, are therefore as follows : 

Table XXXV. — Showing prmcipal outstanding bonds of the United States. 



Title of loan. 


Rate. 


When 
issued. 


Redeemable 
after- 


Outstanding 
May 1, 1911. 


Consols, 1930 . 


Per cent. 
2 
3 
4 
2 
2 


1900 

1898 
1895-96 
1906 
1908 


Apr. 1,19.30 
Aug. 1,1908 
Feb. 1,1925 
Aug. 1,1916 
Nov. 1, 1918 


$646,250,150 


Loan of 1908-18. . . . 


63, 94.'^, 460 


Loan of 1925 


118,489,900 
54,631,980 




Do 


30, OOC, 000 







196 KETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 
FEDERAL BONDS NOW ISSUED TO PAY FOR PUBLIC WOKKS. 1 

In connection with the last loan made by this Government it is 
interesting to note that formerly the debt of governments repre- 
sented the cost of wars, but more recently an increasing portion of 
government debts in other countries as well as our own represents the 
cost of industrial undertakings. It follows, therefore, that bond- 
holders have a further security for the payment of the interest in 
the earning power of properties, such as the Panama Canal or the 
Russian railway system, in addition to the regular source of public 
revenue, that is, the taxing power of the nation. 

FEDERAL BONDS SAFEST OF INVESTMENTS. 

Of all possible investments, therefore, the United States Govern- 
ment bond is probably the safest. 

RATE OF INTEREST ON FEDERAL BONDS LOW. 

By reason of this fact, however, the interest return is correspond- 
ingly low. The splendid credit of the nation is such that our Govern- 
ment bonds sell at a higher price than the bonds of any other nation, 
over $730,000,000 of the $913,000,000 outstanding bearing only 2 per 
cent interest, the lowest rate of any national issue. This is due, 
however, not merely to the greatness of our resources and the small- 
ness of our debt, but also to the fact that our national banking sys- 
tem is largely based on the bonds of the Government, the national 
banks being required to put Government bonds in the United States 
Treasury as security for their issue of notes or bank bills. The 
exact status of the Government bond as a form of investment is 
summarized as follows by the editor of the Bankers' Magazine: 

Government bonds are an ideal investment for trust funds, but the artificial 
stimulus given to the price of these securities, owing to the uses made of them 
by the national banks, has tended to place them beyond the reach of fiduciary 
institutions. In fact, United States bonds are rapidly losing their investment 
character and are becoming more or less speculative. The 2 per cent bonds 
selling at 103 and upwards maintain their price not because of the interest 
yield, but because of the special uses to which the bonds may be put by the 
national banks. It is hardly necessary to say that if the special privileges 
with reference to security for bank circulation and deposits were removed 
from United States bonds, their price would fall to a level to make them 
attractive investments for savings banks and trust companies.* 

While yielding a very low rate of interest at present, it is well to 
remember, however, that the purchasers of Government bonds dur- 
ing the Civil War realized 6 and 7 per cent on their purchases when 
the war issues were refunded, and that, in the long run, part at least 
of a permanent fund might be invested profitably in Government 
bonds. 

1 See Bankers' Magazine, vol. 72, p. 371. 



BETIKEMEFT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 197 
FEDEEAL BONDS ATTRACTIVE TO LIFE-INSURANCE COMPANIES DURING WAR. 

The desirability of Federal bonds as an asset is also attested by the 
history of life-insurance investments. Except the savings banks, life- 
insurance companies were, until the recent days of corporation 
growth, the only conspicuous and extensive repository of the people's 
savings. Since the organization of the insurance department of the 
State of New York in 1859, the annual statements of the insurance 
companies have made the public familiar with the merits and earn- 
ing power of the various classes of investments. These statements 
seem to show that different kinds of investments have been profitable 
at different periods in the history of the United States. Statistics 
compiled from reports of the 29 largest life-insurance companies 
in the country display an interesting variation in the life-insurance 
companies' record of investments in public bonds. Beginning with 
5.9 per cent of life-insurance assets in 1860, these investments in- 
creased to 16.1 per cent in 1870, 23.4 per cent in 1880, and then fell 
off to 9.2 per cent in 1890 and 8.6 per cent in 1900.^ 

The general significance of these different variations in life-insurance 
investments at different periods would seem to be this : That in times 
of public peace and ordinary business activity Federal bonds yield 
too low a return to be attractive investments, but that in times of 
public peril and prolonged industrial depression they are in great 
demand. In the begimiing of the history of the big life-insurance 
companies in this country there was no large field of investment open 
to them outside of mortgage loans, notes on policy premiums, and 
public loans. The great transcontinental railroads were not yet built 
or projected, the era of gas light, electric light, and water companies 
had not yet dawned. The most remunerative investments of half a 
century ago were mortgages and premium notes and the life-insurance 
companies accordingly put 80 per cent of their money intp those 
securities. Not until the Civil War broke out did public bonds rival 
mortgages or premiums in favor. With the outbreak of hostilities, 
however, and the cessation of industrial activity the life-insurance 
companies hastened to transform their mortgage loans into public 
securities. While gold was at a premium Government bonds could 
be purchased at a price which yielded a rate of interest in paper as 
high as 10 per cent. The maximum price of 285 per cent was reached 
in July, 1864, at which point the purchasing price of greenbacks was 
but 36 cents on the dollar. When at length the effects of the war 
began to wear off and the premium on gold declined, while chances for 
remunerative* investments began to multiply, the Government bonds 
c^ne gradually to look less and less attractive to the insurance com- 
panies, until at the present time they are only used as investments for 

1 See " The Investments of Life-Insurance Companies," by Lester W. Zartman, instructor 
In insurance, Yale University (1906). 



198 EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

unemployed funds. It is important, however, when considering the 
safety of investments to note that, during the financial depression of 
the seventies, the insurance companies purchased a large amount of 
Federal bonds and held them, even though the Government was re- 
funding them at a lower rate of interest, until after 1880. About 
that time railroad securities began to come into high favor, and since 
then the insurance companies have become heavy purchasers of rail- 
road bonds, nearly 29 per cent of their assets in 1900 being in that 
form of securities. 

STATE BONDS. 

Only less secure than United States bonds, according to the testi- 
mony of numerous writers on investments, are the obligations of 
tho sovereign States of the Union. 

State bonds usually sell [says one author] upon a basis which may be taken 
as the equivalent of pure interest, with no element of risk or speculation 
Involved. The obligations of different States sell at different prices, in ac- 
cordance with market conditions and the relations of supply and demand, but 
there can be no question of the equal ability of all States to pay their obliga- 
tions. Repudiation of State debts has occurred in our history, but only in 
cases where an overwhelming majority of the citizens were opposed to the 
creation of the debt at the time of its issue, but lacked the means to control 
the situation. Such instances are chiefly to be found in the case of the so- 
called carpet-bag governments of the Southern States after the Civil War.^ 

STATE BONDS NOW SAFE HOLDINGS. 

The conditions under which the repudiated State bonds were issued 
are so different from any that now obtain or are likely to occur again 
that there is to-day no reason for believing that any of our State 
issues of recent date are anything but safe holdings. The bonds of 
those States which have maintained an unbroken record for payment 
of their debts are in such high favor that, like Government bonds, 
they are out of the reach of the majority of investors. During the 
War of the Rebellion Massachusetts met all its obligations in gold, 
even when gold was selling at a stupendous premium. Its credit 
is consequently very sound. The issues of New York State are like- 
wise in high favour and yield the investor approximately 3 per cent.- 
Nearly all the States are now, however, on a sound financial basis, so 
that their bonds are among the safest of securities. 

Some State issues [says Montgomery Rollins] have valuable assets in the 
shape of income-producing property, which contribute toward the payment of 
the principal and interest of its obligations; such, for instance, are the large 
Income-producing State-owned wharves and docks in San Francisco. 

1 See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., 
New York (1908). 

* See lnvf'«lmt>nt Probloms, by Fisk and Robinson MOOT). 



RETIREMENT OP StJPERANNUAlED CIVIL-SERVICE EMPLOYEES. 199 

Again, an indebtedness of tliis nature may be incurred for some improvement 
more or less local in its nature, the particular section benefited being primarily 
responsible for the liquidation of the debt, for which, nevertheless, the State 
has obligated itself for payment, an example being bonds issued by the Common- 
wealth of Massachusetts for the benefit of the Metropolitan Water District. 

EATE OF INTEREST ON STATE BONDS NOT HIGH. 

The interest return from most of our State securities is not large, and con- 
sequently their purchase is more or less limited to institutions such as insur- 
ance companies and savings banks, or to trustees of estates, or to those seek- 
ing a particularly conservative form of investment and who can afford the low 
rate of interest.^ 

MUNICIPAL BONDS. 

Municipal bonds are declared by one writer to be " among the most 
popular and safest forms of investments." ^ 

Municipal bonds [says another author] have steadily grown in favor for 
individual investment. They have always been in demand by institutions, and 
the savings banks of the country at the very outset were permitted to purchase 
and loan upon them, or to loan money to towns and cities, which is substantially 
the same thing. Numerous favorable court decisions have further established 
their position, and no one to-day hears the theory advanced, as was the case 
40 years ago, that a municipal bond is a third mortgage, the Federal and State 
debts taking precedence as first and second mortgages. One of the strongest 
points in their favor has been the decision of the United States Supreme Court 
in the celebrated income-tax case, in wiiich it was held that these bonds were 
exempt from the operation of the income tax. As a result of this conclusive 
opinion by the court of highest resort any shade of doubt that may have 
remained as to the desirability of municipal bonds for the investment of indi- 
vidual or trust funds has been swept away.^ 

In this connection Judge Dillon has written : 

The Supreme Court of the United States has upheld the rights of the holder 
of municipal securities with a strong hand, and has set a face of flint against 
repudiation, even when made on legal grounds deemed solid by the State courts, 
by municipalities which had been deceived and defrauded. [Further:] The 
value of such securities is largely due to the course of adjudication in respect 
thereto by the Supreme Court and the reliance which is felt by the public that 
it will stand firmly by the doctrine it has so fi-equently asserted.* 

In his little book on Municipal Bonds, Eben H. Gay quotes the case 
of Moultrie County v. Fairfield (see 105 U. S., 370 (1882), to prove 
that should repudiation be attempted judgment may be secured 
against the city for the amount of interest or principal in default, and 
the officials who have hitherto refused to levy the necessary tax com- 
pelled, by writ of mandamus, so to do.^ 

1 See Money and Investments, by Montgomery Rollins, p. .S73. 

2 See " Investment Securities," by George B Caldwell, manager bond department, Ameri- 
can Trust and Savings Bank, Chicago, 111., in American Investment, February, 1906. 

^ See Savings Banks and Safe Securities, by .1. G. Dater, p. 58. 

* See Dillon's Municipal Bonds, p. 7. 

* See Municipal Bonds, by Eben H. Gay, published by N. W. Harris & Co., bankers, 
Boston, 1890. 



200 RETIREMENT OF SUPERANNUATED ClVlL-SERVICE EMPLOYEES. 
LARGE INVESTMENTS IN MUNICIPAL BONDS. 

With the safety of municipal bonds assured, their increased popu- 
larity as an attractive form of investment has caused a phenomenal 
growth in the municipal indebtedness of the country. According to 
the Federal census of 1902, the funded debt and special assessment 
loans of minor civil divisions amounted to $1,561,433,680. The steady 
increase in urban population, as shown in the following table, explains 
this large indebtedness. 

Table XXXVII. — Showing population living in cities at each decade.^ 









Inhabit- 


Census 
year. 


Population 

of the 

United States. 


Population 
living in 

cities. 


ants of 
cities in 

each 100 of 
the total 

population. 


1790 


3,929,214 


131,472 


3.3 


1800 


5,308,438 


210,873 


4.0 


1810 


7,239,881 


356, 920 


4.9 


1820 


9,633,822 


475,135 


4.9 


1830 


12,866,020 


864, 509 


6.7 


1840 


17,069,453 


1,453,994 


8.5 


1850 


23,191,876 


2,897,586 


12.5 


1860 


31,443,321 


5,072,256 


16.1 


1870 


38,558.371 


8,071,875 


20.9 


1880 


50,155,783 


11,318,547 


22.6 


1890 


62,947,714 


18,317,783 


29.1 


1900 


75,994,575 


25,126,668 


33.1 


1910 


91,972,266 


35,726,720 


38.8 



■ This table Includes cities of 8,000 and over. 



The development of cities and tlie wonderful advance made in material com- 
fort through waterworks, pavement, gas and electric plants, sewers, drains, 
and sanitation within the last half century, while creating a new form of in- 
debtedness, has greatly advanced the valuation of real property, which, despite 
increased obligation, furnishes more than adequate security for the indebted- 
ness. Wise legislation has afforded still further protection to these obligations 
by limiting the bonding power of communities, so that to-day the net municipal 
debt of the country bears an exceedingly low ratio to the assessed valuation 
of the property upon which it is a lien. Another point in favor of municipal 
bonds is that, while furnishing adequate security to investors, they possess also 
a highly recognized standard of value in all money centers. Thus they are 
readily accepted as collateral in bank loans and, while not fluctuating widely 
in the market, or subject to the attacks of unprincipled speculators, they are 
readily marketable. In nearly all the important cities of the country invest- 
ment bankers are ready and anxious to buy, sell, or exchange such securities 
in order to supply the enormous investment demand for them from individuals 
and corporations.* 

The purposes for which municipal bonds are issued is illustrated 
by the following classification of the funded debt and special assess- 
ment loans of minor civil divisions in 1902, compiled from census 
returns. 

1 See Savings Banks and Safe Securities, by J. G. Dater (1898), p. 64. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 201 
Table XXXVIII. — Showing purposes of municipal bond issues. 



Purpose of issue. 



Amount. 



Total. 



Waterworks 

Electric light and gas works. 
AU other industries 



Total for municipal industries 

Municipal buildings 

Police and Are departments 

School buildings and sites 

Libraries, art galleries, and museums. . . 

Parks and gardens 

Sewers 

General street improvements 

Street paving 

Bridges and abolition of grade crossings . 

liOcal improvements 

General improvements 

Railroad subsidies 

All other 

Issued for funding 

Issued for refunding 



Total. 



Total for all purposes . 



5320,986,519 
11,116,323 
82,585,338 



69. 
7. 

127, 
19, 
78, 
93, 

129, 
14, 
65, 
60, 

113, 
47, 

122, 
95, 

111, 



271,842 
507,753 

805. 525 
628,835 
491,792 
403,831 
266, 201 
229, 869 
669, 942 
849,728 
883, 183 
794,885 

140. 526 
760,808 
040,780 



8414,688,180 



1,146,745,500 



1,561, 433, ( 



CHAKACTEE OF MUNICIPAL BONDS ACCEPTABLE. 

Attention is directed to the fact that the proposed bill makes the 
acceptability of municipal bonds determined by four factors: (1) The 
population of the municipality; (2) its period of existence as a city 
or town, which must be not less than 25 years; (3) its good record in 
the payment of debts, the bonds of no city being acceptable if it has 
defaulted within 10 years in the payment of any part of either princi- 
pal or interest of any funded debt authorized to be contracted by it ; 
and (4) its net indebtedness, which must not exceed 5 per cent of the 
valuation of the city's taxable property in the case of cities or towns 
of less than 200,000 inhabitants, and must not exceed 7 per cent of the 
valuation of the taxable property in cases of cities of more than 
200,000 inhabitants. 

BONDS OF SMALL MUNICIPALITIES. 

The last bill introduced during the first session of the Sixtieth 
Congress (H. R. 21261) limited investments in municipal bonds to 
cities of 100,000 population and over. A number of financiers con- 
sulted advised that the investment provision be changed to include 
cities of much smaller population, care being taken to preserve the 
clause as to the time the municipality had been a city. Mr. Louis D. 
Brandeis, of Boston, author of the savings-bank and annuity law 
which was recently enacted in Massachusetts, said that, in his opinion, 
many of the smaller cities are better security than the larger ones, and 
that it is not in the interest of the people generally or of the employees 
to discriminate against the smaller municipalities. The proposed bill 
accordingly limits investments in bonds to bonds of cities having a 



202 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

population of 25,000 and over. According to the census of 1900, there 
are 156 cities in the United States which have a population of 25,000 
or over.^ 

In support of the contention that the smaller municipalities are 
often better security than the larger ones, and that it is not in the 
interest of the people generally to discriminate against the smaller 
municipalities, the following quotation is of interest : 

While differing only moderately from one another in point of safety and 
income return, municipal bonds may be divided into two distinct classes in 
accordance with the degree of convertibility which they possess. Some mu- 
nicipal bonds possess great convertibility ; others almost none. The feature 
which chiefly determines the activity or inactivity of a municipal issue is the 
size and importance of the municipalty, together with the amount of bonds 
which it has outstanding. The bonds of large and important cities, whose out- 
standing debt reaches considerable proportions, usually possess great activity. 
They are constantly traded in and command a broad market, because dealers 
are willing to buy or sell in blocks at prices within a fraction of 1 per cent 
apart. 

On the other hand, the bonds of counties, townships, and small cities are 
usually quite inactive. Transactions rarely occur in them, dealers do not make 
market in them, and they can be sold only to genuine investors. It is often 
impossible to have them even quoted. 

At first sight it would appear that active municipal bonds would be much 
more desirable, but inactive municipals possess a special advantage which the 
active ones do not enjoy. They possess more stability of market price. It is 
true that their stability of value is due to the fact that they are not traded in or 
quoted and is therefore largely fictitious, but nevertheless it accomplishes a 
useful purpose. It enables the investor to carry inactive municipals at cost 
price upon his books through periods in which active market bonds would re- 
quire to be marked down in conformity with prevailing market prices. No 
other class of investment except real-estate mortgages possesses to the same 
degree this quality of price stability. For many classes of buyers — savings 
banks, for example — stability of price is a consideration of prime importance. 
The preservation of the savings bank's surplus and, indeed, the continued 
solvency of the institution depend upon maintaining the integrity of the prin- 
cipal which it has invested. A savings bank requires, also, great safety of 
principal and interest, i. e., the certainty that principal and interest installments 
will be paid at maturity. It needs only a fair, but not high, yield, and it does 
not need to place emphasis upon convertibility or prospect of appreciation in 
value. Comparison of these requirements with the characteristics of inactive 
municipal bonds discloses a strikmg adaptability on their part to the real needs 
of the case. As a consequence, it is not surprising to discover that inactive 
municipals are greatly sought by savings banks. 

The desirability of inactive municipals for savings-bank investment was never 
more forcibly illustrated than on the first of last January, when the savings 
banks came to make up their annual statements. Broadly speaking, there can 
be no doubt that they were saved by the large quantity of inactive municipals 
and real-estate mortgages which they carried. Had any considerable portion 
of their assets consisted of railroad bonds and active municipals, upon which 

1 The number of cities of 25,000 inhabitants has probably increased since 1900. It does 
not follow, however, that all will come within the provisions of the bill, for the reason 
that their net indebtedness may be greater in some cases than allowed under the bill. 



EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 203 

they should have had to write off a loss of 10 to 15 points, their solvency would 
almost certainly have been impaired.^ 

" NET INDEBTEDNESS " DEFINED. 

In accordance with the suggestion of Mr. Pierre Jay, former bank 
commissioner of the Commonwealth of Massachusetts, and others, the 
proposed bill contains a definition of the term " net indebtedness " 
similar to that contained in the Massachusetts law relating to in- 
vestments of savings banks. While it is generally conceded that 
municipalities can not usually stand a greater " net indebtedness " 
than 5 per cent of the assessed valuation, it is a rule that has some 
striking exceptions. The assessed valuation is the value fixed upon 
the property of the municipality by authorized officials for the pur- 
pose of taxation, but the rules for fixing the assessments vary in dif- 
ferent places. In New York, for instance, property is assessed at 
about its true value, whereas in Chicago the assessment of real prop- 
erty is based upon about 75 per cent of its real value. In munici- 
palities where the assessed valuation is only a fraction of the real 
value of the property, the net indebtedness of the city may safely be 
more than 5 per cent of the valuation of the city's taxable property. 
The Massachusetts law for savings banks has been followed in this 
as in other respects, and the proposed bill therefore fixes the limit of 
indebtedness allowed on the smaller municipalities — those having 
less than 200,000 inhabitants — at 5 per cent of the assessed valuation, 
and raises the limit of indebtedness allowed municipalities of more 
than 200,000 inhabitants to 7 per cent of the valuation of their tax- 
able property. By net indebtedness is meant " the indebtedness of 
any city or town, omitting debts created for supplying the inhabit- 
ants with water and debts created in anticipation of taxes to be paid 
within one year, and deducting the amount of sinking funds avail- 
able for the payment of the indebtedness included." 

ESSENTIAL POINTS IN CONSIDERING SA-FETY OF MUNICIPAL BONDS. 

Before dismissing the subject of the safety and desirability of the 
municipal bond as a form of investment, it may be proper to empha- 
size the fact that municipalities are not all governed by the same laws 
nor possessed of the same degree of civilization and material wealth, 
and that their credit therefore varies like that of different individuals. 
The statement is made by the manager of a Chicago bond house that 
'"the important elements of security in a municipal bond are the 
legality of its issue, the moral hazard^ the assessed valuation of the 
property that must be taxed to pay the bond, and the ratio of the 
debt to real assessment valuation." ^ 

1 See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., 
of New York (1908). 

2 See "Investment Securities," by George B. Caldwell, manager bond department, Ameri- 
can Trust and Savings Bank, Chicago, 111., in American Investments, February, 1906. 



204 RETIREMENT OP SUPERANNUATED CTVIL-SERVICE EMPLOYEES. 

The points which should be considered in the investigation of a 
municipal bond are similarly defined by another bank official as 
follows : 

(1) The proportion which the total debt of the municipality bears to the 
assessed valuation of the property subject to taxation; (2) the purpose of 
issue, which must be a proper and suitable one; (3) the proceedings under 
which the bonds were issued, which must be in full compliance with the law. 

" If these points are found to be satisfactory, the investor may rest content 
that no other form of security is so greatly safeguarded and that his bonds 
rank upon a substantial equality with Government and State obligations.^ 

BATE OF INTEREST ON MUNICIPAL BONDS. 

After the safety of the municipal bond, the most important thing 
to be considered is the rate of interest which it will yield. Since 
United States and State bonds are now so high in value, it follows that 
the Government employees' retirement fund will have to depend 
mainly on municipal bonds to lift the interest rate above an average 
of 2 or 3 per cent. Can they be depended on to jdeld the 3^ per cent 
provided for in the bill, or the 4 per cent recommended as more de- 
sirable? In the opinion of savings-bank officials of New York and 
New England who have been consulted it is safe to guarantee that 
rate of interest on the employees' savings. According to the state- 
ment of a prominent bond house, the yield on the investments in 
municipal bonds may be said to range between 3| and 4^ per cent.^ 

The vice president of the First National Bank of Chicago, 111., 
states that " municipal bonds yield, according to their grade, from 3^ 
to 5 per cent to the investor, and as a class they are one of the best 
investments in the market." * 

PROBABLE FUTURE COURSE OF RATE OF INTEREST. 

The profitable investment of the retirement fund created under the 
provisions of the proposed bill will depend on the rate of interest 
which can be obtained on the securities to which it is restricted. 
Many persons believe that the rate of interest is lower now than it 
has been in the past and that it is likely to be still lower in the future. 
The student finds, however, that the interest rate fluctuates constantly, 
so that it is impossible to know whether the general tendency of the 
rate is upward or downward unless a long period of years is taken 
under observation. It may be stated, of course, as a general proposi- 
tion that the interest rate is always low in an old and settled country 
in comparison to what it is in a new and undeveloped one, and that 

1 See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., 
New York (1908). 

2 See Investment Problems, by Pisk & Robinson. 

» See " Investments," by David R. Porgan, vice president First National Bank, Chicago, 
in American Investments, February, 190(3. 



RETIKEMENT OF SUPEBANNUATED CIVIL-SERVICE EMPLOYEES. 205 

money therefore is not likely to bring in future years the large return 
it has brought here in the past when the Great West was first opened 
up to industry. The fact, too, that these are days of swift and easy 
communication between widely distant countries lowers the general 
rate of interest by making our American securities well known the 
world over and bringing to us from all points of the compass without 
much effort the capital desired. Nevertheless, in spite of the fact that 
these modern conditions might be expected to depress the interest 
rate and keep it down, there are those who say, not only that the rate 
of interest is now on the upward trend and has been so for some time, 
but that it never will stay down for any great length of time. 

It is illuminating in connection with this discussion to read what 
Lester W. Zartman, instructor in insurance at Yale University, has 
said on this subject 

If we study the rate of interest in the United States from the period of the 
Civil War, we shall find that there has been one tendency through the whole 
period, the movement toward lower rates. Much discussion in insurance circles 
has been based on the shovi^ing of this period. The conclusion has been that the 
tendency of interest is to decline, and investments, especially during the past 15 
years, have been made on the assumption that the rate of interest for a long 
time was to continue to decline. It is a mistake to base conclusions on a study 
of the period since the Civil War and on this period alone. Valid conclusions 
must be based on a wider study. 

There is a belief widely prevalent that the rate of interest has been high 
throughout the history of the United States until recent years, and that there 
has been a gradual decline to vi^hat is known as the present low rate. This is 
not exactly true. It is a fact that in general the rate of interest in the United 
States has been higher than in Europe, especially in England, but, relatively 
speaking, the rate was not steadily high during the early history of the country, 
nor has there been a gradual decline. The real situation is that the rate has 
been a fluctuating one. During colonial times 6 per cent was altogether a 
common rate of interest. Before the Revolutionary War loans could be secured 
on desirable mortgages in New York State at 5 per cent, which can not be 
considered as a high rate on mortgage loans, for many borrowers are paying 
more even now.^ 

Zartman goes on to describe the fluctuations in the rate of interest 
in succeeding years. He finds that during the thirties the rate fluctu- 
ated rapidly, being extremely high in 1836 and then, during the severe 
depression following the crisis of 1837-1839, going as low as 4 per 
cent on many loans, the ordinary rate fluctuating around 6 per cent. 
Life-insurance statistics were not available before 1850, but savings- 
bank statistics show that for such investments as the savings banks 
were allowed to make the rate of interest for 50 years was probably 
under 6 per cent. From 1850 to 1860 the statistics of the income and 
assets of seven life-insurance companies are available, and show, in a 
general way, that the rate of interest for the decade 1850-1860 was 
somewhat below 6 per cent. 

igee The Investmeiits of Life Insurance Companies, by Lester W. Zartman. 



206 RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

After 1860 we have abundant data as to the rate of earnings 
secured by the life companies on their investments. In the early 
part of the sixties there was a decrease in earnings, but in 1863 the 
interest rate began to rise, and in 1864 the rate was the highest 
known in the experience of the insurance companies. This was due 
to the fact that they had large investments in Government bonds, the 
interest on which was paid in gold, and gold was at a premium. The 
prevailing rate was more than 7 per cent and 8 to 12 per cent was 
not uncommon. 

Since the latter part of the sixties the interest rate has declined 
more or less unsteadily, but none the less surely. The decade of the 
seventies was a period of widespread financial depression. In the 
early part of the decade the prevailing interest rate was 6^ per cent, 
in the latter part 6 per cent. After 1880 the decline in the rate of 
interest became more pronounced. Not a single company maintained 
a level of 6 per cent unbroken. The general interest rate Avas 5^ per 
cent. The rapid decline in the rate of interest continued in the decade 
of the nineties, reaching its lowest point in 1893 and 1894. The aver- 
age rate for the decade was about 5 per cent, but in the worst years 
it sank as low in numerous cases as 2^ and 3 per cent. The latter part 
of the decade was a turning point. Since 1900 the average rate 
of interest earned by the life-insurance companies has been 4J per 
cent, though there have been sharp fluctuations. It may be safely 
stated that since 1896 the general tendency of interest rates has been 
slowly but steadily upward. From this survey of the interest returns 
obtained by the principal life-insurance companies on their invest- 
ments, thus collected and classified by Zartman, the^ main conclusion 
to be drawn would seem to be this, that the tendency of the interest 
rate is not to decline but to fluctuate. Remembering that the future 
is long, it is safe then to argue that while the rate of interest may be 
low at some time in the future, it is sure, also, to be high at some other 
time in the future. 

It is true, however, that some writers hesitate to hazard a predic- 
tion as to the rate of interest in the future. Among them is Prof. 
Irving Fisher, of Yale University, whose conclusions are thus sum- 
marized in his exhaustive work, " The Eate of Interest : " 

In order to estimate the possible variation in the rate of interest we may, 
broadly spealving, take account of the following three groups of causes: (1) The 
thrift, foresight, self-control, and love of offspring which exist in a community ; 
(2) the progress of inventions; (3) the changes in the purchasing power of 
money. The first cause tends to lower the rate of interest ; the second to raise 
it; and the third to affect only the nominal rate of interest, though practically 
it usually produces also a dislocation in the real rate of interest. 

Were it possible to estimate the strength of the various forces thus sum- 
marized we could base upon them a prediction as to the rate of interest in the 
future. Such a prediction, however, to be of much value would require more 



RETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 207 

painstaking attention tlian has ever been given to existing historical conditions. 
Without such a careful investigation any prediction is hazardous.^ 

Numerous actuaries have declared that it is folly to say that the 
rate of interest will continue to decline, since the time would come 
if that were true when money would be loaned without interest, a 
condition contrary to all probability. Carried to its logical con- 
clusion, the idea of constantly declining interest would lead ulti- 
mately to the theory that the rate of interest must eventually become 
a minus quantity, and the time arrive when the money lender would 
pay the borrower for taking the money off hie hands, a theory not 
likely to gain much credence in the business world. 

The probable future rate of interest was discussed with great 
earnestness at the Fourth International Congress of Actuaries, held 
in New York in August, 1903. Two papers were presented, one on 
" The Probable Future Course of the Rate of Interest," by Mr. J. 
Burn, of Great Britain, and one on " Der wahrscheinliche Lauf des 
Zinssatzes in der Zukunft," by Dr. Ludwig Grossmann, of Austria. 
Mr. Burn's conclusion was as follows : 

The most probable future course of the rate of interest (providing no 
exceptional disturbances occur) would therefore seem to be: 

A fall, small but rapid, within the next year or two ; then a less rapid fall 
lasting possibly for several years, and gradually settling down to a general 
tendency to fall at a slower and slower rate.^ 

It is interesting to note that since 1903, the year when this paper 
was read, the rate of interest has steadily advanced, and that most 
of the actuaries who participated in the discussion which followed 
the reading of these papers indorsed rather the views of Dr. Gross- 
mann, who held that the marked decrease in the returns from invest- 
ments appeared to be mainly of a temporary nature.^ Dr. Alfred 
Manes, of Germany, called attention to a recent work by Ernst Voye, 
of Halle, entitled, " On the Extent of the Various Rates of Interest 
and their Reciprocal Dependence on Each Other. The Course of 
the Rate of Interest in Prussia from 1807 till 1900." In this the 
author divides the century into four periods, discussing the rate of 
interest in Prussia in each period. He finds that in the first period, 
from 1807 to 1844, there was a general decline in the rate of interest, 
which, owing to extremely unfavorable political relations (until 
1814) was as high as 8 per cent and then dropped about 1844 to 3| 
per cent. In the second period, from 1845 to 1870, it rose, inter- 
rupted several times by a retrograde movement. The years from 
1871 to 1895 comprise the third period, in which an almost uninter- 
rupted decline is to be noticed and the rate of interest dropped to 
3 per cent, the minimum of the entire century. Finally, in the fourth 

1 See The Rate of Interest, by Irving Fisher, Ph. D., p. 334. 

2 See Documents, Fourth International Congress of Actuaries, p. 574. 
8 See Documents, Fourth International Congress of Actuaries, p. 922. 



208 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

period, from 1896 to 1900, was observed a rather rapid upward move- 
ment to over 3^ per cent. The author states the fact that in America, 
Eussia, France, and Austria the rate of interest has also declined 
since 1870, and comes to the following conclusion : 

Constantly increasing commerce converts tlie national money markets int^ 
an international money market, contracting more and more, so that the rates 
of the separate countries tend to adjust themselves each to the other. Whether 
the rate of interest in one of the civilized states will ever again deviate from 
that in another by 4 per cent, as was the case in 1869 between the United States 
and England, is highly questionable. * * * The development of an inter- 
national rate of interest produces the natural result that by an extension of 
the market, the rate of interest in the separate countries is secured against 
too low a decline as well as against an immoderate rise. * * * The reac- 
tion of the foreign upon the domestic rate of interest can, therefore, be generally 
only favorable and by no means predominantly unfavorable.^ 

Another strong speech, bringing out the same point, was made on 
that occasion by Mr. Charlton T. Lewis, of the United States. 
Said he: 

It has been often asserted in the public press and sometimes in the writings 
of economists, * * * ^]jat there is a progressive and secular tendency to 
diminution in the rate of interest. This theory has been widely accepted among 
financial men, yet on examination it proves to be without foundation. All 
these diagrams, all these tables, the whole history of the rate of interest go to 
disprove it. 

He then went on to trace the history of the rate of interest in 
Europe and the United States from the time of the Napoleonic wars 
down to the present day, showing the same general fluctuations in the 
rate that had been noted by Ernst Voye in his book. From 1815 to 
1845 a general decline, from 1846 to 1871 a general rise, from 1872 
to 1897 a general decline, and from 1897 to 1903, the year in which 
he spoke, a general rise again, " so marked that it is astonishing to 
me that the facts have not obtained more prominence in this debate." 

He opposed next " another theory by which many economists have 
been influenced," and that is " that the accumulation of capital in 
itself has a tendency to lower the rate of interest, and that as the 
world grows richer the rate of interest must progressively decline." 

If there is any established fact in the financial history of the world, any 
general truth which is demonstrated by experience on the largest scale, it is 
that this theory is unfounded. Is there a man with any knowledge of economic 
history who doubts that the world's wealth made enormous progress in the 
century from 1760 to 1860? Is there any possible question that the growth of 
capital in the period which some of us are able to remember, from 1845 to 1870, 
was rapid and magnificent, far outstripping the growth of population? Yet 
if we inquire into the market of each of these epochs we shall find that in 
each case the rate of interest at the later date was materially and universally 
much higher than it was at the early date. * * * 

^ See Proceedings of the Fourth International Congress of Actuaries, Vol. II, p. 150. 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 209 

These facts, which can not be disputed, show that while the normal rate 
of interest is a function of the average productiveness of capital, its fluctua- 
tions depend not simply day by day and month by month, and even year by 
year, but sometimes from generation to generation upon other influences. 
These are mainly the forces which shape the imaginings and expectations of 
men. The most potent of them is the spirit of enterprise, the degree in which 
the tendency prevails among men to reach forward energetically for the future 
and to shape it for themselves with confidence. 

Keasoning thus, Mr. Lewis comes to the conclusion that the rate of 
interest^ — 

Will undergo fluctuations, but as long as capital in the hands of human indus- 
try and of human ingenuity can reproduce its kind, the rate at which it prom- 
ises to increase will be the only limit beyond which enterprise and sanguine 
hope will be unwilling to pay for the use of it.^ 

Bearing all these facts and arguments in mind, it would seem 
reasonable to assume that a permanent fund invested in stable se- 
curities will yield, on the average, a moderate rate of interest such 
as it is here proposed shall be guaranteed the Government employees 
on their savings. 

1 See Proceedings of the Fourth International Congress of Actuaries, Vol. II, pp. 
156-161. 

74196 '—S. Doc. 745, 61-3 14 



Appendix A. 

TEXT OF PERKINS BILL. 

[S. 1944, Sixty-first Congress, first session.] 
A BILL For tlie retirement of employees in the classified civil service. 

Be it enacted hy the Senate and House of Representatives of the United States 
of America in Congress assembled, That beginning with the first day of July 
next following the passage of this act there shall be deducted and withheld from 
the monthly salary, pay, or compensation of every officer or employee of the 
United States to whom this act applies an amount, computed to the nearest 
tenth of a dollar, that will be sufficient, with interest thereon at three and one- 
half per centum per annum, compounded annually, to purchase from the United 
States, under the provisions of this act, an annuity, payable quarterly through- 
out life, for every such employee on arrival at the age of retirement as herein- 
after provided, equal to one and one-half percentum of his annual salary, pay, 
or compensation for every full year of service or major fraction thereof between 
the date of the passage of this act and the arrival of the employee at the age 
of retirement. The deductions hereby provided for shall be based on such 
annuity table as the Secretary of the Treasury may direct, and interest at the 
rate of three and one-half per centum per annum, compounded annually, and 
shall be varied to correspond to any change in the salary of the employee. 

Sec. 2. That the amounts so deducted and withheld from the salary, pay, 
or compensation of each employee shall be deposited in the Treasury of the 
United States and shall be credited, together with interest at three and one-half 
per centum per annum, compounded annually, to an individual account of the 
employee from whose salary, pay, or compensation the deduction is made. The 
moneys so deducted and the income derived therefrom may from time to time 
be deposited in savings banks designated by the Secretary of the Treasury for 
that purpose : Provided, however, That the savings banks receiving such deposits 
shall pay interest thereon at a rate of not less than three and one-half per 
centum per annum, compounded annually. For the safe-keeping and prompt 
payment of the money deposited with them the Secretary of the Treasury shall 
require the savings banks to give satisfactory security, by the deposit of bonds 
of the United States, bonds or other interest-bearing obligations of any State 
of the United States, or any legally authorized bonds issued for municipal pur- 
poses by any city or town in the United States which has been in existence as a 
city or town for a period of twenty-five years, and which for a period of ten 
years previous to such deposit has not defaulted in the payment of any part 
of either principal or interest of any funded debt authorized to be contracted 
by it, and which has at such date more than twenty-five thousand inhabitants, as 
established by the last national census, and whose net indebtedness does not 
exceed five per centum of the valuation of the taxable property therein, to be 
ascertained by the last preceding valuation of property for the assessment of 
taxes; or any legally authorized bonds issued for municipal purposes by any 
210 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 211 

city or town in the United States which has been in existence as a city or town 
for a period of twenty-five years, and which for a period of ten years previous 
to such deposit has not defaulted in the payment of any part of either principal 
or interest of any funded debt authorized to be contracted by it, and which 
has at such date more than two hundred thousand inhabitants, as established 
by the last national census, and whose net indebtedness does not exceed seven 
per centum of the valuation of the taxable property therein, to be ascertained 
by the last preceding valuation of property for the assessment of taxes. In this 
clause the words " net indebtedness " mean the indebtedness of any city or town, 
omitting debts created for supplying the inhabitants with water, and debts created 
in anticipation of taxes to be paid within one year, and deducting the amount of 
sinking funds available for the payment of the indebtedness included. The 
Secretary of the Treasury shall accept, for the purpose of this act, securities 
herein enumerated in such proportions as he may from time to time determine, 
and he may at any time require the deposit of additional securities, or require 
any bank to change the character of the securities already on deposit. It shall- 
be the duty of the Secretary of the Treasury to obtain information with refer- 
ence to the value and character of the securities authorized to be accepted 
under the provisions of this section, and he shall from time to time furnish 
information to savings banks as to such bonds as would be accepted as security. 
When consistent with the best interests of the fund created by this act, the Sec- 
retary of the Treasury shall distribute the deposits herein provided for, as far 
as practicable, equitably between the different States and sections. 

If, for any reason, the Secretary of the Treasury shall not be able to make 
satisfactory arrangements with savings banks for all of the funds, then he may 
invest the balance in any of the aforementioned securities. 

The moneys deducted from salaries and the income derived therefrom shall 
be held and deposited or invested, as above described, by the Secretary of the 
Treasury until paid out as hereinafter provided. Any deficiency in the fund 
hereby created to carry out the provisions of this act shall be paid out of any 
money in the Treasury not otherwise appropriated. 

For the purpose of aiding the Secretary of the Treasury in depositing and 
investing the funds created by this act a board of investment is hereby created, 
composed of the Treasurer of the United States, the Comptroller of the Cur- 
rency, the chief of the office created by the provisions of this act, and two 
persons to be designated by the President from among the employees of the 
classified civil service. The members of the board of investment shall be 
sworn, and shall hold office until others are appointed and qualified in their 
stead. 

Sec. 3. That the retirement age herein referred to shall be sixty-five years 
for group one, sixty-five years for group two, and seventy years for group three. 
And the President of the United States shall designate the branches of the 
service to be included in each group. 

Sec. 4. That if within thirty days before the arrival of an employee at the 
age of retirement the head of the department or independent oflice in which he 
is employed certifies to the Secretary of the Treasury that by reason of his 
efficiency and his willingness to remain in the service the continuance of such 
employee therein would be advantageous to the public service, such employee 
may be retained for a term not exceeding two years ; and at the end of the 
two years he may by similar certification be continued for an additional term 
of two years, and so on. Upon the failure of the head of the department or 
independent office to make the above-described certificate it shall be the duty 
of the Secretary of the Treasury to place such employee upon the retired list 
in accordance with the provisions of this act. 



212 EETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Sec. 5. That if an employee is retained in ttie service after reaching the 
retirement age a deduction of ten per centum of his monthly salary, pay, or 
compensation shall thereafter be made while he remains in the service, and 
the same shall be treated as other deductions under section tv^^o of this act. 

Sec. 6. That upon retiring at the age of retirement, or thereafter, the em- 
ployee may withdraw his savings, with the increment of interest as herein 
provided, under one of the following options, and if Option I or Option II is 
selected, receive in addition thereto such annuity, if any, as may be apportioned 
by the Secretary of the Treasury out of accumulations in excess of three and 
one-half per centum guaranteed by the provisions of this act, and such appor- 
tionment by the Secretary of the Treasury shall be conclusive : 

Option I. In an annuity payable quarterly throughout life. 

Option II. In an annuity payable quarterly throughout life, with the provi- 
sion that in case of the death of the annuitant before he has received in 
annuities the amount of his savings, plus the interest credited thereon, the 
balance shall be paid to his legal heirs. In determining at his death the amount 
due to his heirs no account shall be taken of the annuities paid to him by the 
United States under section eleven of this act. 

Option III. In one sum. 

If after retirement the employee does not avail himself of one of the fore- 
going options, but leaves the amount due him on deposit, interest at the rate 
of two per centum per annum on the original sum so left on deposit on retire- 
ment shall be credited thereto for a period not exceeding twenty years, and if 
not then withdrawn the money so left on deposit, without interest, shall be 
covered into the Treasury as a miscellaneous receipt. 

Sec. 7. That upon absolute separation from the civil service prior to the 
retirement age, and only upon such separation, the employee may withdraw his 
savings in one sum, and in case he has been in such service not less than six 
years he may also receive in addition thereto interest on his savings at the rate 
of three and one-half per centum per annum, compounded annually; or, in 
case his savings amount to at least one thousand dollars, he may withdraw 
the same under any one of the foregoing options computed on the basis of his 
attained age. In case of the death of an employee while in the service the 
amount of his savings, together with the interest credited thereon, shall be paid 
to his legal heirs. 

Sec. 8. That beginning with the first day of July next following the passage 
of this act there shall be deducted and withheld from the monthly salary, pay, 
or compensation orf every employee newly entering the service to whom this act 
applies an amount equal to one-fifth of his monthly salary, pay, or compensation 
during the first six months of his employment ; and in every case of promotion 
of any person to whom this act applies there shall be deducted and withheld 
from the monthly salary, pay, or compensation of such person an amount equal 
to the increase made by such promotion during the first three months from the 
taking effect thereof; and the amounts so deducted and withheld shall be de- 
posited in the Treasury of the United States to the credit of a special fund to 
carry out the provisions of section nine of this act. 

Sec. 9. That beginning one year after the first day of July next following 
the passage of this act, any employee to whom this act applies, who has served 
the United States for not less than twenty years, and who, by reason of acci- 
dent or illness not due to vicious habits or by reason of exigencies of the 
service but without fault or delinquency on his part, has become totally and 
permanently disabled, may retire from active service prior to the age of retire- 
ment, and, on certificate from the head of the department or independent office 
in which he is employed to the Secretary of the Treasury setting forth such 



RETIREMENT OF SUPERAISTNUATED CIVIL-SERVICE EMPLOYEES. 213 

disability and the approval of such certificate by the Secretary of the Treasury, 
may receive, out of the fund created by section eight of this act, an annual 
disability allowance, payable quarterly, equal to one and one-half per centum 
of his total compensation during service prior to such retirement. Allowances 
under this section shall be discontinued on arrival of the employee at the age 
of retirement unless sooner terminated by the Secretary of the Treasury. 

If upon the retirement of an employee on a disability allowance the money 
then to his credit under section two of this act, together with interest thereon 
at three and one-half per centum per annum, compounded annually, will not be 
sufiicient to purchase an annuity, payable quarterly throughout life, for such 
employee on arrival at the age of retirement equal to his annual disability 
allowance, the Secretary of the Treasury shall deduct and withhold from his 
quarterly disability allowance an amount, computed to the nearest tenth of a 
dollar, that together with the money then to his credit, with interest, will be 
sufficient to purchase such annuity. Amounts deducted and withheld from dis- 
ability allowances shall be treated as deductions under section two of this act. 
If the money to his credit as aforesaid is in excess of the amount that will be 
required to purchase such annuity he may withdraw such excess in one cash 
sum, or in an annuity certain limited to the age of retirement. 

The Secretary of the Treasury shall reduce or terminate the disability 
allowance granted to any employee whenever in his judgment it is proper to 
do so, and such action on his part shall be final and conclusive. 

In case of the death of an employee while in the receipt of a disability 
allowance, the amount to his credit under section two of this act shall be 
paid to his legal heirs, and the disability allowance shall cease and determine. 

The disability allowances hereby provided for shall at all times be limited 
to the fund created by section eight of this act, and if the total allowances 
shall at any time be in excess of such fund the allowances shall be reduced 
pro rata to a sum within such fund. 

Sec. 10. That in case of reinstatement in the classified civil service of any 
person who at the time of his separation therefrom received a refund under 
section seven of this act, his period of service for the purpose of retirement 
and of making the monthly deduction from his salary shall be computed from 
the date of such reinstatment, unless he shall, within ninety days after rein- 
statement, pay to the Secretary of the Treasury the amount refunded to him, 
with interest at three and one-half per centum per annum, in which case the 
same shall be replaced to the credit of his account, and the former period of 
service shall be counted. 

Sec. 11. That beginning with the first day of July next following the pas- 
sage of this act every employee to whom this act applies shall be entitled, 
on reaching the retirement age, or having already passed that age, to retire 
from the service under the provisions hereinbefore contained, and also, in 
addition to the annuity herein provided for by his own contributions from his 
salary, to receive from the United States during the remainder of his life 
an annuity equal to one and one-half per centum of his total compensation 
during service prior to the taking effect of this act; and the Secretary of the 
Treasury is hereby authorized and directed to pay such annuity quarterly, 
upon proper certification of the retirement of such employee by the appointing 
ofiicer under whom he last served. Annuities from the United States for the 
period of service prior to the passage of this act shall be payable only on 
condition that the employee remains in the service until he reaches the age 
of retirement: Provided, however, That employees of group one may receive 
the annuity granted by this section on retirement at the age of sixty years 
or thereafter. On the death of the employee the payment of annuities provided 



214 RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

for by this section shall cease and determine. Annuities payable by the United 
States on salaries in excess of two thousand five hundred dollars per annum 
shall be based upon an annual salary of two thousand five hundred dollars. 

Skc. 12. That the period of service upon which the annuity to be paid by 
the United States is based shall be computed from original employment, 
whether as a classified or unclassified employee, and shall include periods of 
service at different times and service in one or more departments, branches, 
or independent offices of the Government, the Signal Corps prior to July first, 
eighteen hundred and ninety-one, and the general service in or under the War 
Department prior to May sixth, eighteen hundred and ninety-six. 

Sec. 13. That every person to whom this act applies who shall continue in the 
classified civil service after the passage of this act, as well as every person to 
whom this act applies who may hereafter be appointed to a position or place, 
shall be deemed to consent and agree to the deductions made and provided for 
herein, and shall receipt in full for the salary, pay, or compensation which may 
be paid monthly or at any other time, and such payment shall be a full and 
complete discharge and acquittance of all claims or demands whatsoever for 
services rendered by such person during the period covered by such payment, 
notwithstanding the provisions of sections one hundred and sixty-seven, one 
hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes 
of the United States, or of any other law, rule, or regulation affecting the salary, 
pay, or compensation of any person or persons employed in the classified civil 
service to whom this act applies. 

Sec. 14. That the Secretary of the Treasury shall prepare and keep all need- 
ful tables, records, and accounts required for carrying out the provisions of this 
act. The records to be kept shall include data showing the mortality experi- 
ence of the employees in the various branches of the service and the rate of 
withdrawal from the classified service, and any other information that may be 
of value and may serve as a guide for future valuations and adjustments of the 
plan for the retirement of employees. The Secretary of the Treasury shall 
make a detailed comparative report annually to Congress showing all receipts 
and disbursements under the provisions of this act, together with the total 
number of persons receiving annuities and disability allowances and the amounts 
paid them. 

Sec. 15. That the provisions of this act shall apply only to the classified civil 
service in the District of Columbia, which is hereby defined to include all olficers 
and employees in the executiA'e civil service of the United States in the District 
of Columbia, except persons appointed by the President and confirmed by the 
Senate, and unskilled laborers. No person serving in a position excepted from 
examination or registration as defined in the civil-service rules shall be included 
within the provisions of this act unless he has served in a competitive position 
for at least one year. Whenever any person becomes separated from the classi- 
fied service by reason of appointment in the unclassified service, such separa- 
tion shall not operate to take him out of the provisions of this act. The Presi- 
dent shall have power, in his discretion, to exclude from the operation of this 
act any group of employees whose tenure of office is intermittent or of uncer- 
tain duration. 

Sec. 16. That none of the moneys mentioned in this act shall be assignable 
either in law or equity or be subject to execution or levy by attachment, garnish- 
ment, or other legal process. 

Sec. 17. That for the clerical and other service and all other expenses neces- 
sary in carrying out the provisions of this act during the fiscal year nineteen 
hundred and ten, including salaries and rent in the city of Washington, there is 
hereby appropriated the sum of twenty thousand dollars out of any money in 
the Treasury not otherwise appropriated, to be available until expended. 



HETlfeEMEiSTT OE StTPERANlSrUATED CiVlL-SEBVlCE EMPLOYEES. 2l6 

Sec. 18. That the Secretary of the Treasury is hereby authorized to perform 
or cause to be performed any and all acts and to make such rules and regula- 
tions as may be necessary and proper for the purpose of carrying the provisions 
of this act into ifull force and effect. 



Appendix B. 
TEXT or GILLETT BILL. 

[H. R. 22013, Sixty-first Congress, second session.] 
A BILL for tlie retirement of employees in the classified civil service. 

Be it enacted ty the Senate and House of Representatives of the United States 
of America in Congress assembled, That beginning with the first day of July 
next following the passage of this act there shall be deducted and withheld from 
the monthly salary, pay, or compensation of every officer or employee of the 
United States to whom this act applies an amount, computed to the nearest 
tenth of a dollar, that will be sufficient, with interest thereon at three and one- 
half per centum per annum, compounded annually, to purchase from the United 
States, under the provisions of this act, an annuity, payable quarterly, through- 
out life, for every such employee on arrival at the age of retirement as here- 
inafter provided, equal to one and one-half per centum of his annual salary, pay, 
or compensation for every full year of service or major fraction thereof be- 
tween the date of the passage of this act and the arrival of the employee at the 
age of retirement. The deductions hereby provided for shall be based on such 
annuity table as the Secretary of the Treasury may direct, and interest at the 
rate of three and one-half per centum per annum, compounded annually, and 
shall be varied to correspond to any change in the salary of the employee. 

Sec. 2. That the amounts so deducted and withheld from the salary, pay, or 
compensation of each employee shall be deposited in the Treasury of the United 
States and shall be credited, together with interest at three and one-half per 
centum per annum, compounded annually, to an individual account of the em- 
ployee from whose salary, pay, or compensation the deduction is made. The 
moneys so deducted and the income derived therefrom may from time to time 
be deposited in savings banks designated by the Secretary of the Treasury for 
that purpose : Provided, however, That the savings banks receiving such de- 
posits shall pay interest thereon at a rate of not less than three and one-half 
per centum per annum, compounded annually. For the safe-keeping and prompt 
payment of the money deposited with them the Secretary of the Treasury shall 
require the savings banks to give satisfactory security, by the deposit of bonds 
of the United States, bonds or other interest-bearing obligations of any State 
of the United States, or any legally authorized bonds issued for municipal pur- 
poses by any city or town in the United States which has been in existence as a 
city or town for a period of twenty-five years, and which for a period of ten 
years previous to such deposit has not defaulted in the payment of any part of 
either principal or interest of any funded debt authorized to be contracted by it, 
and which has at such date more than twenty-five thousand inhabitants, as es- 
tablished by the last national census, and whose net indebtedness does not ex- 
ceed five per centum of the valuation of the taxable property therein, to be ascer- 
tained by the last preceding valuation of property for the assessment of taxes; 
or any legally authorized bonds issued for municipal purposes by any city or 



216 BETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 

town in the United States which has been in existence as a city or town for a 
period of twenty-five years, and which for a period of ten years previous to 
such deposit has not defaulted in the payment of any part of either principal or 
interest of any funded debt authorized to be contracted by it, and which has at 
such date more than two hundred thousand inhabitants, as established by the 
last n.itional census, and whose net indebtedness does not exceed seven per 
centum of the valuation of the taxable property therein, to be ascertained by 
the last preceding valuation of property for the assessment of taxes. In this 
clause the words " net indebtedness " mean the indebtedness of any city or 
town, omitting debts created for supplying the inhabitants with water, and 
debts created in anticipation of taxes to be paid within one year, and deducting 
the amount of sinking funds available for the payment of the indebtedness in- 
cluded. The Secretary of the Treasury shall accept, for the purpose of this 
act, securities herein enumerated in such proportions as he may from time to 
time determine, and he may at any time require the deposit of additional securi- 
ties, or require any bank to change the character of the securities already on 
deposit. It shall be the duty of the Secretary of the Treasury to obtain in- 
formation with reference to the value and character of the securities author- 
ized to be accepted under the provisions of this section, and he shall from time 
to time furnish information to savings banks as to such bonds as would be 
accepted as security. "When consistent with the best interests of the fund cre- 
ated by this act, the Secretary of the Treasury shall distribute the deposits 
herein provided for, as far as practicable, equitably between the different 
States and sections. 

If, for any reason, the Secretary of the Treasury shall not be able to make 
satisfactory arrangements with savings banks for all of the funds, then he may 
invest the balance in any of the aforementioned securities. 

The moneys deducted from salaries and the income derived therefrom shall 
be held and deposited or invested, as above described, by the Secretary of the 
Treasury until paid out as hereinafter provided. Any deficiency in the fund 
hereby created to carry out the provisions of this act shall be paid out of any 
money in the Treasury not otherwise appropriated. 

For the purpose of aiding the Secretary of the Treasury in depositing and 
investing the funds created by this act a board of investment is hereby created, 
composed of the Treasurer of the United States, the Comptroller of the Cur- 
rency, the chief of the office created by the provisions of this act, and two 
persons to be designated by the President from among the employees of the 
classified civil service. The members of the board of investment shall be 
sworn, and shall hold office until others are appointed and qualified in their 
stead. 

Sec. 3. That the retirement age herein referred to shall be sixty-five years 
for group one, sixty-five years for group two, and seventy years for group three. 
And the President of the United States shall designate the branches of the 
service to be included in each group. 

Sec. 4. That if within thirty days before the arrival of an employee at the 
age of retirement the head of the department or independent office in which 
lie Is employed certifies to the Secretary of the Treasury that by reason of his 
efficiency and his willingness to remain in the service the continuance of such 
employee therein would be advantageous to the public service, such employee 
may be retained for a term not exceeding two years; and at the end of the 
two years he may by similar certification be continued for an additional term 
of two years, and so on : Provided, however, That after the first day of July, 
nineteen hundred and twenty, no person to whom this act applies shall be con- 
tinued in the service beyond the age of retirement as herein provided. Upon 



RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 217 

the failure of the head of the department or independent office to make the 
above-described certificate it shall be the duty of the Secretary of the Treasury 
to place such employee upon the retired list in accordance with the provisions 
of this act. 

Sec. 5. That if an employee is retained in the service after reaching the re- 
tirement age a deduction of ten per centum of his monthly salary, pay, or 
compensation shall thereafter be made while he remains in the service, and the 
same shall be treated as other deductions under section two of this act. 

Sec. 6. That upon retiring at the age of retirement, or thereafter, the em- 
ployee may withdraw his savings, with the increment of interest as herein 
provided, under one of the following options, and if Option I or Option II is 
selected, receive in addition thereto such annuity, if any, as may be apportioned 
by the Secretary of the Treasury out of accumulations in excess of three and 
one-half per centum guaranteed by the provisions of this act, and such appor- 
tionment by the Secretary of the Treasury shall be conclusive: 

Option I. In an annuity payable quarterly throughout life. 

Option II. In an annuity payable quarterly throughout life, with the pro- 
vision that in case of the death of the annuitant before he has received, in 
annuities the amount of his savings, plus the interest credited thereon, the 
balance shall be paid to his legal heirs. In determining at his death the 
amount due to his heirs no account shall be taken of the annuities paid to him 
by the United States under section eleven of this act. 

Option III. In one sum. 

If after retirement the employee does not avail himself of one of the fore- 
going options, but leaves the amount due him on deposit, interest at the rate 
of two per centum per annum on the original sum so left on deposit on retire- 
ment shall be credited thereto for a period not exceeding twenty years, and if 
not then withdrawn the money so left on deposit, without interest, shall be 
covered into the Treasury as a miscellaneous receipt. 

Sec. 7. That upon absolute separation from the civil service prior to the 
retirement age, and only upon such separation, the employee may withdraw his 
savings in one sum, and in case he has been in such service not less than six 
years he may also receive in addition thereto interest on his savings at the 
rate of three and one-half per centum per annum, compounded annually; or, 
in case his savings amount to at least one thousand dollars, he may withdraw 
the same under any one of the foregoing options computed on the basis of his 
attained age. In case of the death of an employee while in the service the 
amount of his savings, together with the interest credited thereon, shall be 
paid to his legal heirs. 

Sec. 8. That beginning with the first day of July next following the passage 
of this act there shall be deducted and withheld from the monthly salary, pay, 
or compensation of every employee newly entering the service to whom this 
act applies an amount equal to one-fifth of his monthly salary, pay, or compen- 
sation during the first six mouths of his employment; and in every case of 
promotion of any person to whom this act applies there shall be deducted and 
withheld from the monthly salary, pay, or compensation of such person an 
amount equal to the increase made by such promotion during the first three 
months from the taking effect thereof; and the amounts so deducted and with- 
held shall be deposited in the Treasury of the United States to the credit of a 
special fund to carry out the provisions of section nine of this act. 

Sec. 9. That beginning one year after the first day of July next following the 
passage of this act, any employee to whom this act applies, who, by reason of 
accident or illness not due to vicious habits or by reason of exigencies of the 
service but without fault or delinquency on his part, has become totally and 



218 RETIREMENT OP SUPERANiTtJATEt) ClVlL-SERVlCE EMPLOYEES. 

permanently disabled, may retire from active service prior to the age of re- 
tirement, and, on certificate from tlie head of the department or independent 
office in which he is employed to the Secretary of the Treasury setting forth 
such disability and the approval of such certificate by the Secretary of the 
Treasury, may receive, out of the fund created by section eight of this act, an 
annual disability allowance, payable quarterly, equal to one and one-half per 
centum of his total compensation during service prior to such retirement: 
Provided, however, That, unless prorated by the Secretary of the Treasury as 
hereinafter provided, the allowance for disability due to accident shall be equal 
to not less than twenty per centum of the average annual compensation of the 
disabled employee prior to such retirement : And provided further. That the 
allowance for disability due to illness shall only be granted after twenty 
years of service. Allowances under this section shall be discontinued on ar- 
rival of the employee at the age of retirement unless sooner terminated by the 
Secretary of the Treasury. 

If upon the retirement of an employee on a disability allowance the money 
then to his credit under section two of this act, together with interest thereon at 
three and one-half per centum per annum, compounded annually, will not be 
sufficient to purchase an annuity, payable quarterly throughout life, for such 
employee on arrival at the age of retirement equal to his annual disability 
allowance, the Secretary of the Treasury shall deduct and withhold from his 
quarterly disability allowance an amount, computed to the nearest tenth of a 
dollar, that together with the money then to his credit, with interest, will be 
suflicient to purchase such annuity. Amounts deducted and withheld from 
disability allowances shall be treated as deductions under section two of this 
act. If the money to his credit as aforesaid is in excess of the amount that 
will be required to purchase such annuity he may withdraw such excess in one 
cash sum. or in an annuity limited to the age of retirement. 

The Secretary of the Treasury shall reduce or terminate the disability allow- 
ance granted to any employee whenever in his judgment it is proper to do so, 
and such action on his part shall be final and conclusive. 

In case of the death of an employee while in the receipt of a disability allow- 
ance, the amount to his credit under section two of this act shall be paid to his 
legal heirs, and the disability allowance shall cease and determine. 

The disability allowances hereby provided for shall at all times be limited to 
the fund created by section eight of this act, and if any valuation of the fund 
shows the liabilities for allowances to be in excess of the resources of such 
fund, then the allowances shall be reduced pro rata to a sum within the fund. 

Sec. 10. That in case of reinstatement in the classified civil service of any 
person who at the time of his separation therefrom received a refund under 
section seven of this act, his period of service for the purpose of retirement and 
of making the monthly deduction from his salary shall be computed from the 
date of such reinstatement, unless he shall, within ninety days after reinstate- 
ment, pay to the Secretary of the Treasury the amount refunded to him, with 
interest at three and one-half per centum per annum, in which case the same 
shall be replaced to the credit of his account, and the former period of service 
shall be counted. 

Sec. 11. That beginning with the first day of July next following the passage 
of this act every employee to whom this act applies shall be entitled, on reach- 
ing the retirement age, or having already passed that age, to retire from the 
service under the provisions hereinbefore contained, and also, in addition to 
the annuity herein provided for by his own contributions from his salary, to 
receive from the United States during the remainder of his life an annuity 
equal to one and one-half per centum of his total compensation during service 



EETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 219 

prior to the taking effect of this act : Provided, however, That no annuity shall 
be paid by the United States for services prior to the passage of this act, which, 
together with the annuity earned by the employee's own contribution, shall 
amount to more than six hundred dollars ; and the Secretary of the Treasury is 
hereby authorized and directed to pay such annuity quarterly, upon proper cer- 
tification of the retirement of such employee by the appointing officer under 
whom he last served. Annuities from the United States for the period of serv- 
ice prior to the passage of this act shall be payable only on condition that the 
employee remains in the service until he reaches the age of retirement : Provided, 
hoivever. That employees of group one may receive the annuity granted by tMs 
section on retirement at the age of sixty years or thereafter. On the death of 
the employee the payment of annuities provided for by this section shall cease 
and determine. Annuities payable by the United States on salaries in excess 
of two thousand five hundred dollars per annum shall be based upon an annual 
salary of two thousand five hundred dollars. 

Sec. 12. That the period of service upon which the annuity to be paid by the 
United States is based shall be computed from original employment, whether 
as a classified or unclassified emploj'ee, and shall include periods of service at 
different times and service in one or more departments, branches, or independent 
offices of the (Jrovernment, the Signal Corps prior to July first, eighteen hundred 
and ntnety-one, and the general service in or under the War Department prior 
to May sixth, eighteen hundred and ninetj'-six. 

Sec. 13. That every person to whom this act applies who shall continue in the 
classified civil service after the passage of this act, as well as every person to 
whom this act applies who may hereafter be appointed to a position or place, 
shall be deemed to consent and agree to the deductions made and provided for 
herein, and shall receipt in full for the salary, pay, or compensation which may 
be paid monthly or at any other time, and such payment shall be a full and 
complete discharge and acquittance of all claims or demands whatsoever for 
services rendered by such person during the jieriod covered by such payment, 
notwithstanding the provisions of sections one hundred and sixty-seven, one 
hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes 
of the United States, or of any other law, rule, or regulation affecting the salary, 
pay, or compensation of any person or persons employed in the classified civil 
service to whom this act applies. 

Sec. 14. That the Secretary of the Treasury shall prepare and keep all needful 
tables, records, and accounts required for carrying out the provisions of this 
ace. The records to be kept shall include data showing the mortality experience 
of the employees in the various branches of the service and the rate of with- 
drawal from the classified service, and any other information that may be of 
value and may serve as a guide for future valuations and adjustments of the 
plan for the retirement of employees. The Secretary of the Treasury shall 
make a detailed comparative report annually to Congress showing all receipts 
and disbursements under the provisions of this act, together with the total 
number of persons receiving annuities and disability allowances and the amounts 
paid them. 

Sec. 15. That the provisions of this act shall apply only to persons in the 
classified civil service in the departments and independent offices in the District 
of Columbia. No person serving in a position excepted from examination or 
registration as defined in the civil-service rules shall be included within the 
provisions of this act unless he has served in a competitive position for at least 
one year. Whenever any person becomes separated from the classified service 
by reason of appointment In the unclassified service, such separation shall not 
operate to take him out of the provisions of this act. The President shall have 



220 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

power, In his diaci-Gtion, to exclude from the operation of this act any f?roup of 
en\i)]()yces wliose tenure of office Is Intermittent or of uncertain duration. 

Sia;. 10. TIi:it none of the moneys mentioned in this act shall be assignable 
cither in Inw or equity or bo subject to execution or levy by allaohment, f^aruish- 
nieul, or otlier ie^;il process. 

Sec. 17. That for the clerical and other service and all other expenses neces- 
sary in carryiug out the provisions of this act during the fiscal year nineteen 
luMidrod !ind t(Mi, including salaries and rent in tlie city of Washington, there 
Is hereby iipi)ropriatod Ihe sum of twenty thousand dollars out of any money 
In the Treasury not otherwise api)roi)ri;ited, to be available until (!xi)ended. 

Seo. 18. That the Secretary of the Treasury is hereby autliorized to perform 
or cause to be performed any and all acts and to make such rules and regula- 
tions ;is may be necessnry and proixM- for the purpose of carrying the provisions 
of tills act into full force and ellect. 



Appendix C. 

TEXT OF AUSTIN BILL. 

flT. R. 71!!) — Slxly-sccoiid Coiif^rcsH, lirst session.] 

A HTT/Tj li'or liici'cnsiiiK llic Kniiirlcs and for llic rctlreuicnt of employees In the classlded 

civil service. 

lie it enacted by the Senate and House of Representatives of the United States 
of America in Con(;ress assembled, That begiiming with the lirst day of July 
next following the ])assage of this act the jiunual salary, -jtay, or compensation 
of every officer or employee of the United States to whom this act apj)lies shall 
be increased to an amount, computed to the nearest multiple of twelve dollars, 
that will be equal to one hundred and fifteen per centum of the present grade 
of salary, pay, or compensation of such ofiicer or emi)loyee, and from such salary, 
l)ay, or comi)ensation tliere shall be deducted and witiiheld monthly an amount 
computed to the nonrest tenth of a dollar, that will be suliicient, with interest 
thereon at live per centum per annum, compounded annually, to purchase from 
the UniU'd Stales, under the i)rovision of tins act, au annuity, payable quarterly 
througliout life, for every such employee on arrival at the age of retirement as 
hereinafter provided, equal to one and owe-half per centum of his annual snhiry, 
pay, or compensation for every full year of service or major fraction thereof 
between the date of the passage of this act and the arrival of the employee at 
the age of retirement. The deductions hereby provided for shall be based on 
such annuity table as the Secretary of the Treasury nuiy direct, and interest at 
the rate of five per centum per annum, conqjouuded aimually, and shall be 
varied to corresi)ond to any cliange in the salary of the employee. 

Sico. 2. That the amounts so deducted and witlilield from the salary, pay, or 
compensation of each enq)ioyee shall be dei)osiled in tlie Treasury of the United 
States and shall be credited, together with interest at \\\g per centum i)er an- 
num, compounded annually, to an individual account of the employee from 
whose salary, pay, or compensation the deduction Is made. The moneys so 
deducted and the income derived therefi'om may, from time to time, be de- 
posited in savings banks d(>signated by the Secretary of the Treasury for that 
puri)ose: Vrovided, however, That the savings banks receiving such dei)osits 
shall pay interest thereon at a rate of not less than three and one-half per 
centum per annum, compounded aiuiually. For the safekeeping and prompt 
payment of the money deiiosited with tliem the Secretary of the Treasury shall 



RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 221 

require the savings banks to give satisfactory security by the deposit of bonds 
of the United States, bonds or other interest-bearing obligations of any State of 
the United States, or any legally authorized bonds issued for municipal pur- 
poses by any city or town in the United States which has been in existence as a 
city or town for a period of twenty-five years, and which for a period of ten 
years previous to such deposit has not defaulted in the payment of any part of 
either principal or interest of any funded debt authorized to be contracted for by 
it, and which has at such date more than twenty-five thousand inhabitiints, as 
established by the last national census, and whose net indebtedness does not 
exceed five per centum of the valuation of the taxable property therein, to be 
ascertained by the last preceding valuation of property for the assessment of 
taxes; or any legally authorized bonds issued for municipal purposes by any 
city or town in the United States which has been in existence as a city or town 
for a period of twenty-five years, and which for a period of ton years previous 
to such do[)Osit has not defaulted in the payment of any part of either principal 
or interest of any funded debt authorized to be contracted by It, and which 
has at such date more than two hundred thousand lnhai)itants, as established by 
the last national census, and whose net indebtedness does not exceed seven per 
centum of the valuation of the taxable property therein, to be ascertained by 
the last preceding valuation of property for the assessment of taxes. In this 
clause the words "net indebtedness" mean the indebtedness of any city or 
town, omitting debts created for supplying the inhabitants with water, and 
debts created in anticipation of taxes to be paid within one year, and deducting 
the amount of sinking funds available for the payment of the indebtedness 
included. The Secretary of the Treasury shall accept, for the purpose of this 
act, securities herein enumerated in such proportions as he may from time to 
time determine, and he may at any time require the deposit of additional securi- 
ties, or require any bank to change the character of the securities already on 
deposit. It shall be the duty of the Secretary of the Treasury to obtain infor- 
mation with reference to the value and character of the securities authorized 
to be accei)ted under the provisions of this section, and he shall from time to 
time furnisli information to savings banks as to such bonds as would be accepted 
as security. When consistent with the best Interests of the fund created by this 
act, the Secretary of the Treasury shall distribute the deposits herein provided 
for, as far as practicable, equitably among the different States and sections. 

If for any reason the Secretary of the Treasury shall not be able to make 
satisfactory arrangements with savings banks for all of the funds, then he may 
invest the balance in any of the aforementioned securities. 

The moneys deducted from salaries and the Income derived therefrom shall 
be held and deposited or invested, as above described, by the Secretary of the 
Treasury until paid out as hereinafter provided. Any defieieney in the fund 
hereby created to carry out the provisions of this act shall be paid out of any 
money in the Treasury not otherwise appropriated. 

For the purpose of aiding the Secretary of the Trcasuy in depositing and 
investing the funds created by this act, a board of investment is hereby created, 
composed of the Treasurer of the United States, the Comptroller of the Cur- 
rency, the chief of the office created by the provisions of this act, and two 
persons to be designated by the President from among the employees of the 
classified civil service. The members of the board of investment shall be sworn 
and shall hold office until others are appointed and qualified in their stead. 

Sec. 3. That the retirement age herein referred to shall be sixty-five years 
for group one, sixty-five years for group two, and seventy years for group three. 
And the President of the United States shall designate the branches of the serv- 
ice to be included in each group. 



222 IMO'l'lltKIVllON'r (»!'' SIII'I'llfAN NIIA'I'KI) ( 11 V 1 1 j-yERVICE I'iM I'l.OYEES. 

Sioo. 4. Tlml, If vvllliiri lliir-ly «liiys Ix'l'orc llic ari'iviil oC iiii ciiiiiloyci^ Ml (Ik; 
n^o of rcl ii'cinoiit IIm> hrnd ol' llic (|(>|)iii'tiii<>iil or liKlciiciKlcnl ollico In wlilt'li lie 
Ih (MMploycd ••crllllcH l<» I lie Hccircliiry ol" I ho TrciiHiiry I lull; by reason of liis 
<illlcl<'iicy iiikI IiIh vvllliMK'H'HH l<> rcimilii In llio H('rvlc<! tlio conllmmucc of Hiich 
(•nijiioyct* tlici'ciii would he ndv!iiiliiK<'<>"H <<> Hk' piihiic Horvico, micli oiiiployof,' 
niny bo rolnliicd for n lorni iiol oxcoodiiif; I wo yciirH, jind ill llio ond of I wo 
years he iiiiiy by Hliiilliir eertldcatloii bo coiilimiod for an additional term of 
two years, iind no on : I'nwided, however, That after the flrst day of July, nlno- 
toon linndrcd iiiid Iwoiily, no perpon to whom this act applloH Hhnll be eontlmied 
ill IIk' HiM'vlco beyond the ape of retirement aH henMn pi-ovlded. TIi)on the fiiiliuv 
of Hie lu^iid of the deiiiirlnieiit or liidepciidenl odlce to niiik(> the above-deHcribed 
eertlllciite It Hhiill be the duly of llio Socrolary of the Treasury to jiiaee such 
oniployeo njion tlie relln>d list In accordiiiice wllli 1h(> i)rovisloiis of this act. 

Sn:e. r>. 'That If an oinployee Is roliiliied lii lll(^ servicer after reachluK the 
retlreiuent ago a deduction of Ion ])er (mmiIiiiii of his luonllily siihiry, pay, or 
conipensiition sluill thei-eiiftei- bo niiide while ho remains In the service, and the 
same shall be treated as ollior deductions under section two of this act. 

Sko. <;. 'Phut upon retlrluK at IIk^ ii^o of retirement, or thereafter, the employee 
niiiy willidriiw his HiivlnRS, with the Increment of Interest as herein provided, 
under oiio of liio foilowliiK oiilloiis, and If Opilon I or Ojitlon IT Is selecled, 
rec<*ivo ill iiddilioii liiorolo such aiiuiiily, if any, as may bo sipporlionod by the 
Secrohiry of the Treasury out of accumiiliitlons In excei-'s of (ho per centum 
fi;uiiriiiitood by the provisions of this act, and such nppcM'llonment by the 
Hecrelnry of liio Trcnsiiry shiiil bo coucluslvo: 

Option I. In :iii niiuiilly ])ayable quiirteriy lliroiij^liout life. 

Opilon II. Ill nil niinulty i)ayablo quarterly throughout lilV, with the pro- 
vision lliiil ill ciisc of the death of the aunultnnt before lie has received In 
aniiullics IIk' jiiii.miiiI of his savings, plus the Interest credited tliereoii, the 
bniaiico siiiili bo paid lo his lt>gal h(>lrs. Tu detormining at his death the 
iiiiioiiiil dm' to Ills heirs no account shiill lie taken of the annuities paid to him 
by the United Sliilos under S(>ctlon oiovoii of liiisact. 

O|i(lon 111. lu <aio sum. 

If after retirement the employe(> does not nvnll himself of one of the fore- 
RoluK oiitlons, lint loaves the nmoiiut due him on deposit. Interest at the rate of 
two jier centum per annum on I ho original sum so loft on deposit on retirement 
shall bo onMllted thereto fttr a period not exceeding twenty years, and If not 
thou withdrawn, the moiu>y so loft on d(>iv)Slt, without iiit«>r(\sl, sluill be covered 
Into the Treasury as a miscollaueons roccMjit. 

Sko. 7. Thiit iiiuHi iibsoiiil«» sopnnilion from lh(> civil st>rvico prior lo the 
nMlronionl age, and only upon such s(>pariilion, the eiiiployoe miiy withdraw his 
savings in one sum, and in cnse lu^ has Ix'on In such service not less than six 
years, ho iiiny also nu'elvo In addition thereto Interest on his savings at the 
rate of live per c(>nlum per annum, compoiuided annually, or. In case his savings 
ana>uut to at least one Ihousnnd dollars, he may wilhdraw the same under any 
one of the foregoing options, computed on the basis of his attained ago. In 
i-aso of the doiilh of an (Mnploy(>(» while In (ho service the amount of his savings, 
together wKh (ho inlorosi crodil»>d th(«roon, shiiil be paid lo his l(>g!il heirs. 

Sico. R. That bogiuniiig with the llrst day of July next following the passage 
of (his act (li«M-o shall be deduct(>d and williliold from the monthly siilary, pay, 
or c(unponsa(lon of every omployoo newly oiitoriiig (ho service to whom this act 
iipplies an amount (>qual to otio-llfth of his monthly salary, pay, or comiioiisnltoii 
during the (Irst hIx monlhs of his on\ployment; and In every case of lu'omotion 
of any person to whom this net applies there shall bo deducted and withheld 
from the monthly salary, pay, or eoiupousadon of such person an amount equal 



RKTiKioiviMN'r OK K(;i'i';u,A N N I J A'ii';i) civil/ SKitvici'; isivii'iiOYi';i';s, 223 

(,o llic liKireilse mado by hhcIi prfitnolion durinij; llic fli'Hl, ilirfc inoiillm Irom IIh; 
lakliiK oHV'f;!; Ilicn'of; iiiiil llic iiinoiiiilH t^o (Icdiiflcd iind wHldn'lil Hliiill bu 
(lepOHllcd in ilu; 'Vrcnmivy of Ukj IJ/iil(!(J SIiiUjh (,(j IJu; d'cMlli, of ii H|)''<liil fund to 
carry oul. I Ik; proviHlonH of hocUoii uIik! of lldH ii(;l. 

Hico, 0. 'I'hJil, b«;KliinliiK one ycinr iifMtr (lio liiHl; dny of July ii<!xl, following IIk; 
paHHiiKo of IhiH jiot, an einployoe fo whom IliiH act af)i)lleH, wbo, by rcaHon of 
accident or lilncHH not due to vlclouH habltH or by reason of exlKoneleH of llio 
BervIcG, but wItJioiit fault or deJInqueney on hlH part, htiH become totally and 
permanently dlwabled, may retire from active Hervlce prior to the a^ft of rellre- 
ment, and, on certificate from the head of tin; d(!partm(!nt or IndcpciiKhuit odlce 
In which he 1h (MnpioyiMl to the Hiicrelary of Ihe 'I'reiiHiiry, HottiiiK forth Huch 
dlHiil)iiity, and tii(! a|)j)rovjii of hijcIi c<!rtlflca(,(; hy lin; Scci'(iliiry of the TrtKiHury, 
may r(!ceive, out of the fund creat<!d by Wiction elKht of thlH act, an annual 
dlaHJibiiily allowiinc^e, p!iyid)le quarterly, ecjuai to one and onci-haif |)er C(!ntuin 
of his total conqjennatlon <lurlnK Hervlce prhjr to wuch retlrenuint: I'rorAdad, 
however, 1'hat, uiiIchh f>roratt!d by the Secretary of the TreaHury aH hereinafter 
provided, the allowance for dlHablllty, duo to accident, Hhall be equal to not leBU 
than twenty \k\v centum of the average annual coinpenHatloii of th(! dlHnbled 
emj/loycio prior to Kiich retirement: And provided further, That the allowiince for 
dlMiildiity due to llhniHH hIijiII only be Krant(fd jift(!r twenty yearw of Hcrvlce. 
Allowan<;(!H under thlw H(!Ctlo;i Hhnll be dlHconl.irine(J on arrival of the <;in|»loyee 
at the a;4<! of retiniJiKsnt unleKH Hoon<!r teriniojilf-d by the Hecnthiiy of the 
TreaHury. 

If upon the retirement of an employee on a dlHablllty allowance the tnoney 
then to his credit under nectlon two of thiH act, together with Uiterent th<!reon 
at five per centum per annum, compouruJed annually, will not be Hulllclent to 
purchaHC an annuity, jtayable qiiarterly throughout life, for Huch employee on 
arrival at the jikc of n^tirenuint equal to hlH arniual dlHablllty allowance, the 
Hecrelary of the TreaHury Khali d<;duct and withhold from IiIh qujirlerly dlH- 
ablllty allowancf! an arnou/it, coni[)ul,<;d to the nearcHt tenth of a dolliir, that, 
together wllh th«; nion<!y then U> hlH credit, with \^i\^•^■^'.H\, will b(! Hulllclent to 
purchaHe Huch annuity. AmountH deducted and withheld fr<>ni dlHablllty allow- 
anccH Hhall be treatefl aw de.<luctlonH under Kectlon two of thiH act. If the money 
to hlH credit, aH aforenald, Ih In excoHB of tJje amount that will be required tx* 
purchase HUCh annuity, he may withdraw 8uch cxcchh In one cash Hum, or In an 
annuity limited to the iif^e of retirement. 

'I'he Kecretary of the 'i"r<«iHury Hhall v*:t\[\c(t or tei'minnlt; the dlHJildiily nilow- 
ance granted to any employee whenever in hlH JudKnicnt it 1k firopcr to do ho, 
and Hucli action on bin jmrt Hhall b<! final and conclUHlv*;. 

In cane of the death of an employee while In the receipt of a dlHablllty allow- 
ance, the amount to hlH ere/lit under nectlon two of thin act Hhall be paid to 
hlB legal helrH, and the dlHablllty allowance Hhall ceane and determine. 

The diHsiblllty allowancen hereby provided for Bliall at all tlmcH be limited \x) 
the fiuif' creatxK] by w;ctlon eight of thlH act, and If any vniuatlon of the fund 
«howH the liabllltl«!H for allowancen to be In excoHH of the rcHoiirccH of hiicIi fund, 
then the aliowanccK Hhall he reduced pro rata to a Hum within the fund. 

Hioc. 10. 'J'hat In cane of reinKbitement In tlie clnHHifled civil service of any 
perHcm who at the time of bin Hepanit'on therefrom n!c:elved a refund undor 
section Heven of thin act, bin period of service for the purpose of retirement nnd 
of making the monthly deduction from his salary shall be computed from the 
dfite of such reinstatement, unless he shall, within ninety dfiys after reinstate- 
ment, pay to the Secretary of the Treasury the amount refunded to him, with 
Interest at five per centum per annum. In which cawi the same shall be replaced 
to the credit of his account, a/id the former period of service shall be counted. 



224 RETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 

Sec. 11. That beginning with the first day of July next following the passage 
of this act every employee to whom this act applies shall be entitled, on reach- 
ing the retirement age, or having already passed that age, to retire from the 
service under the provisions hereinbefore contained, and also, in addition to 
the annuity herein provided for by his own contributions from his salary, to 
receive from the United States during the remainder of his life an annuity 
equal to one and one-half per centum of his total compensation during service 
prior to the taking effect of this act ; and the Secretary of the Treasury is 
hereby authorized and directed to pay such annuity quarterly, upon proper 
certification of the retirement of such employee by the appointing officer under 
whom he last served. Annuities from the United States for the period of serv- 
ice prior to the passage of this act shall be payable only on condition that the 
employee remains In the service until he reaches the age of retirement : Pro- 
vided, however, That employees of group one may receive the annuity granted 
by this section on retirement at the age of sixty years or thereafter. On the 
death of the employee the .payment of annuities provided for by this section 
shall cease and determine. Annuities^ payable by the United States on salaries 
in excess of two thousand five hundred dollars per annum shall be based upon 
an annual salary of two thousand five hundred dollars. 

Sec. 12. That the period of service upon which the annuity to be paid by the 
United States is based shall be computed from the original eaiployment, whether 
as a classified or unclassified employee, and shall include periods of service at 
different times and service in one or more departments, branches, or independent 
offices of the Government, the Signal Corps prior to July first, eighteen hundred 
and ninety-one, and the general service in or under the War Department prior 
to May sixth, eighteen hundred and ninety-six. 

Sec. 13. That every person to whom this act applies, who shall continue in 
the classified civil service after the passage of this act, as well as every person 
to whom this act applies, who may hereafter be appointed to a position or place, 
shall be deemed to consent and agree to the deductions made and provided for 
herein, and shall receipt in full for the salary, pay, or compensation which may 
be paid monthly or at any other time, and such payment shall be a full and 
complete discharge and acquittance of all claims or demands whatsoever for 
services rendered by such person during the period covered by such payment, 
notwithstanding the provisions of sections one hundred and sixty-seven, one 
hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes 
of the United States, or of any other law, rule, or regulation affecting the salary, 
pay, or compensation of any person or persons employed in the classified civil 
service to whom this act applies. 

Sec. 14. That the Secretary of the Treasury shall prepare and keep all needful 
tables, records, and accounts required for carrying out the provisions of this act. 
The records to be kept shall include data showing the mortality experience of 
the employees in the various branches of the service and the rate of withdrawal 
from the classified service and any other information that may be of value and 
may serve as a guide for future valuations and adjustments of the plan for the 
retirement of employees. The Secretary of the Treasury shall make a detailed 
comparative report annually to Congress showing all receipts and disburse- 
ments under the provisions of this act, together with the total number of per- 
sons receiving annuities and disability allowances and the amounts paid them. 

Sec. 15. That the provisions of this act shall apply to all persons entering the 
classified civil service after the first day of July next following the passage of 
this act, and to all persons in the classified civil service prior to the taking effect 
of this act who shall, by written application to the Secretary of the Treasury 
within one year after the first day of July next following the passage of this 



RETIEBMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 225 

act, elect to become subject to the provisions of tbis act. Tbe classified civil 
service is hereby defined to include all oflicers and employees in the executive 
civil service of the United States except unskilled laborers and persons ap- 
pointed by the President and confirmed by the Senate. 

No person serving in a position excepted from examination or registration as 
defined in the civil-service rules shall be included within the provisions of this 
act unless he has served in a competitive position for at least one year. When- 
ever any person becomes separated from the classified civil service by reason 
of appointment in the unclassified service, such separation shall not operate to 
take him out of the provisions of this act. The President shall have power, in 
his discretion, to exclude from the operation of this act any group of employees 
whose tenure of office is intermittent or of uncertain duration. 

Sec. 16. That none of the moneys mentioned in this act shall be assignable 
either in law or equity or be subject to execution or levy by attachment, gar- 
nishment, or other legal process. 

Sec. 17. That for the clerical and other service and all other expenses neces- 
sary in carrying out the provisions of this act during the fiscal years nineteen 
hundred and eleven and nineteen hundred and twelve, including salaries and rent 
in the city of Washington, there is hereby appropriated the sum of fifty thousand 
dollars, out of any money in the Treasury not otherwise appropriated, to be 
available until expended. 

Sec. 18. That the Secretary of the Treasury is hereby authorized to perform 
or cause to be performed any and all acts and to make such rules and regula- 
tions as may be necessary and proper for the purpose of carrying the provisions 
of this act into full force and effect. 



74196°— S. Doc. 745, 61-3 15 



I 



APPENDIX B. 



(Senate Document No. 290, 61st Congress, 2d Session.) 



CIVIL-SERVICE RETIPvEMENT— GREAT BRITAIN 
AND NEW ZEALAND 

BY 

HERBERT D. BROWN. 



Prepared under the direction of Chas. P. Neill, Commissioner of Labor. 



In the Senate of the United States, 

April 5, 1910. 
Ordered, That 1,000 copies of Senate Document No. 290, Sixty-first Congress, second session, entitled 
"Civil-service retirement in Great Britain and in New Zealand," by Herbert D. Brown, be printed, with 
corrections, for the use of the Committee on Civil Service and Retrenchment. 

Chakles G. Bennett, 

Secretary. 



LETTER OF TRANSMITTAL. 



Department of Commerce and Labor, 

Office of the Secretary, 
Washington, January 13, 1910. 
Sir: In pursuance of Senate resolution of January 11, 1910, direct- 
ing this department to furnish, as soon as practicable, ''such infor- 
mation as may now be in the possession of the Bureau of Labor on the 
subject of foreign and domestic retirement plans for employees of 
government civil service and in the service of industrial and trans- 
portation corporations," I have the honor to transmit herewith 
reports relating to civil-service retirement in Great Britain and in 
New Zealand. 

The Bureau of Labor now has in course of preparation reports 
covering civil-service retirement systems in Austria-Hungary, Canada, 
France, Germany, New South Wales, and other foreign countries, and 
also a report covering existing provisions for retirement for public- 
school teachers and -other municipal employees, and for employees of 
railroads in the United States. These reports will be transmitted at 
as early a date as practicable. 

The forthcoming Twenty-third Annual Report of the Bureau of 
Labor, which will be available within a few days, covers quite fully 
old-age retirement systems in force in industrial and transportation 
companies in this country. 

Respectfully, - Ben. S. Cable, 

• Acting Secretary. 

Hon. James S. Sherman, 

President of the Senate, Washington, D. G. 

3 



CIVIL-SERYICE RETIREMENT IN GREAT BRITAIN. 



CONTENTS. 



Page. 

Letter of transmittal 3 

Civil-service retirement in Great Britain, by Herbert D. Brown: 

Summary 11 

Superannuation provisions before 1810 16 

Tlnx)ugh life offices, sinecures, pluralism, and substitute schemes 16 

Through funds created in various departments from fees and taxes 18 

Through funds created in the excise and customs by deductions from 

salaries 20 

Superannuation act of 1810 — first general law, a provision for free pensions. 21 
Report of committee on public expenditures, 1808, the basis for act 

of 1810 21 

Main features of the act 23 

Superannuation act of 1822 24 

Treasury minute of 1821 establishing principle of deductions from 

salaries the basis for act of 1822 24 

Main features of the act 25 

Repeal of the act 25 

Second period of free pensions, 1824-1829 26 

Report of select committee on public income and expenditure, 1828, 

recommending reestablishment of the system of deductions 26 

Treasury minute of 1829 reestablishing system of deductions 28 

Superannuation act of 1834 30 

Scale of deductions and superannuation allowances 31 

Comparison of schemes of 1822 and 1834 32 

Select committee of 1856 34 

Grievances presented by committee of civil servants 34 

Three general grounds of complaint against act of 1834 39 

(1) Dislike of distinctions between different classes of civil serv- 

ants 39 

(a) Pensions paid chief officers of state and members of legal 
establishments compared with those paid other civil 

employees 40 

(6) Pensions paid employees whose appointments antedated 

1829 compared with those paid other civil employees. . 44 

(2) Dislike of pension scale and forfeiture of contributions 45 

(a) Forfeiture provision objectionable as a form of tontine.. . 46 
(6) Forfeiture provision especially unjust in cases of clerks 

dying in the service 48 

(c) Forfeitable deductions together with inadequate salaries 

a bar to life insurance 51 

(d) Free pensions desired with compulsory deductions for 

purpose of life insurance 54 

7 



8 CONTENTS, 

Civil -service retirement in Great Britain, by Herbert D. Brown — Continued. 

Select committee of 1856 — Continued. Page. 
Three general grounds of complaint against act of 1834 — Continued. 
(3) Distrust of actuarial soundness of plan embodied in act of 

1834 57 

(a) Flat-rate assessments considered inequitable and possi- 
bly inadequate 59 

(6) Accrued liabilities possible cause of insolvency in case of 

fund 65 

Defense of act of 1834 by men responsible for its enactment 68 

Defense of wisdom of providing superannuation allowances 70 

Investigation of actuaries proved deductions inequitable and inade- 
quate 70 

Resolutions of the committee condemning system of deductions and 

recommending revision of salaries 72 

Superannuation commission, 1857 73 

Commission's reasons for advocating a superannuation system 73 

Commission's objections to a contributory scheme 75 

Recommendation that deductions from salary be abolished 76 

Refusal of the commission to recommend an insurailce fund 77 

Indifference of the commission to actuarial phases of the problem 78 

Indifference of the commission to cost of free pension scheme 80 

Repeal of the twenty-seventh section of the superannuation act of 1834, 

1857 80 

Bill for repeal introduced by Lord Naas 80 

Bill opposed by the ministry 82 

Debate on the bill 85 

Vote on the bill 92 

Text of the repeal 93 

Analysis of the vote 94 

Superannuation act of 1859 95 

Bill embodied minor recommendations of superannuation commission. . 95 

Bill introduced and defended by the Government 97 

Debate on the bill 100 

Main featmes of the act 104 

Select committee of 1873 105 

Testimony showing — 

Value to the public service of a superannuation system 106 

Compulsory retirement at a given age advisable 107 

Cost of maintaining free pension system 108 

Pension charge reduced by reducing number of pensionable clerks . 109 

Development of idea that pension is a substitute for part of salary. 109 

Committee's recommendation of compulsory retirement at a given age. 110 

Playfair commission, 1874 Ill 

Optional retirement after twenty years' service proposed and rejected . Ill 

Select committee of 1885 112 

Committee's recommendation of a contributory pension scheme 112 

Ridley commission, 1886 113 

Growth of the deferred-pay argument 113 

Abolition of pensions proposed by Sir Robert Hamilton in favor of sav- 
ings scheme through accumulation of deferred pay 114 

Approval of Sir Robert Hamilton's proposal expressed by officers of the 

Treasury 117 

Assumption that postponed charge is made by the State to pay pensions 

accepted by Sir Reginald Welby 118 



CONTENTS, 9 

Civil-service retirement in Great Britain, by Herbert D. Brown — Continued. 

Ridley commission, 1886 — Continued. Page. 

Confusion in Sir Reginald's mind as to amount of postponed charge. . . 119 
Assumption that postponed charge is made by the State to pay pensions 

accepted by Sir Herbert Maxwell 120 

Confusion in Sir Herbert's mind as to amount of postponed charge 123 

Disapproval of Sir Robert Hamilton's proposal expressed by Mr. 

Mowatt 123 

Confusion in public mind regarding Mr. Mowatt's testimony as to 

amount of postponed charge actually made by the State 125 

Approval of Sir Robert Hamilton's proposal expressed by other high 

officials 126 

(1) Would prevent pensions being charged to posterity 126 

(2) Would facilitate dismissal of inefficient employees 127 

Approval of Sir Robert Hamilton's proposal expressed by civil serv- 
ants 130 

Growing cost of civil pensions 133 

Report of the commission 134 

Rejection of Sir Robert Hamilton's proposal 135 

Recommendation that deductions be made from salary to be re- 
tm-ned on separation from service but forfeited on acceptance of 

pension 135 

Minor recommendations 137 

Criticism of the commission's chief recommendation 139 

Superannuation act of 1887 ■ 141 

Summary of laAV under superannuation acts of 1834, 1859, 1887 143 

Courtney commission, 1902 147 

Appointment of commission due to "deferred pay committee" 147 

Growth in cost of civil pensions since Ridley commission 148 

Relation between cost of pensions and salary charge confused with 

amount of postponed charge made by State to pay pensions 150 

Request of civil servants that theoretical contributions be funded 155 

Request of civil servants for insin-ance out of surplus theoretical con- 
tributions 156 

Fact of postponed charge established but amount not determined .... 158 
Request of civil servants that amount of postponed charge be deter- 
mined 160 

Voluntary insurance organizations maintained by civil servants 161 

Per cent of salaries paid for life insurance by civil servants 162 

Testimony of commission's actuary, showing necessity of provision for 

refund of contributions 163 

Report of commission 165 

Pensions acknowledged to be " deferred pay " 165 

Theoretical deductions from salary held to be only sufficient for 

pension 166 

Funding of theoretical contributions held to be not justified 166 

Recommendation that pensions be reduced one-quarter and differ- 
ence given in insurance and cash 166 

Minority report of commission adverse to any change 168 

Workmen's compensation act, 1906 171 

Superannuation act, 1909 173 

Main features of the present law 173 

Discussion of the act in Parliament. 175 

Conclusions 181 



10 CONTENTS. 

Page. 

Appendix I. Superannuation act of 1834 , 188 

Appendix II. Superannuation act of 1859 195 

Appendix III. Superannuation act of 1887 198 

Appendix IV. Warrant regulating grant of gratuities, etc., under section 1 of 

act of 1887 201 

Appendix V. Scheme of compensation in case of in j ury to government workmen . 203 

Appendix VI. Superannuation act of 1909 205 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

BY HERBERT D. BROWN." 

SUMMARY. 

The British Government has been experimenting for over a century 
with different schemes for solving the problem of superannuation in 
the civil service. 

The first general act dealing with the subject of superannuation 
in all the offices of the Government was passed in 1810. From a 
very early period, however, superannuation funds had existed both 
in the Customs and the Excise departments. After 1810 those funds 
were appropriated by the Government and paid into the exchequer, 
and a general system obtained of granting superannuation allowances 
to the civil service out of the revenues of the country, without the 
existence of any superannuation fund. This system continued in 
force for twelve years. 

The expenditures for pensions increasing very rapidly. Parliament 
passed an act in 1822 which readopted the liberal scale of super- 
annuation allowances of the year 1810, but with the provision that 
deductions should be made from the salaries of those employees of 
the civil service receiving more than £100 ($486.65) per annum. The 
deductions were formed into a fund, and when a civil servant died in 
office or when he resigned or was removed from office without receiv- 
ing a retiring allowance, the whole amount of his contributions was 
repaid to him. The law also provided that half of the superannua- 
tion allowances granted after that period should be paid from the 
fund so created and that the other half should be paid from the Con- 
solidated Fund. This scheme was not given a fair trial, for only 
two years later, in 1824, Parliament repealed the act and ordered that 
the sums which had up to that time been deducted be paid back. 

From 1824 until 1829 followed a second period during which pen- 
sions were granted by the State, without deduction from the salaries 
of civil-service employees. 

In 1829 the Treasury, accepting the contention that it had no 
right to tax existing members of the service, but desirous of lessening 
the pension charge, passed a minute directing that contributions 
should be paid by all those who might afterwards be appointed to the 

a Mr. Brown desires to give credit to Harriet Connor Brown for valuable assistance 

in the collection of historical data. 

11 



12 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

civil service. The deductions from salary were 2^ per cent from 
salaries not exceed ino; £100 ($487) per annum and 5 per cent from 
those exceeding that amount. This was understood to be a provi- 
sional measure, subject to the final decision of ParHament. 

The Superannuation Act of 1834 gave parliamentary sanction to 
this Treasury minute of 1829, and from 1829 to 1857 the contributory 
system of granting superannuation allowances was in force for all 
who entered tlie civil service subsequent to August 4, 1829. This 
act contained no express direction for the creation of a superannua- 
tion fund and it made no provision for the return of contributions in 
case of death or resignation before the contributor had received a 
retiring allowance. Owing to the fact that the contributions of the 
employees were turned into the general exchequer instead of being 
funded and that no account was kept of the amounts thus collected 
and the amounts returned in the shape of pensions, it was not known 
whether the contributions were adequate in the aggregate to meet the 
expenditure for pensions, or whether they were inadequate. An 
impression prevailed that they were more than sufficient and that 
the Government was, therefore, making a profit out of its employees. 
In view of the fact that the salaries were felt to be inadequate, this 
impression created widespread discontent in the service. This dis- 
content was deepened by the fact that the law required forfeiture of 
contributions in the case of all employees save those who lived to the 
pensionable age. It was calculated that only one of every seven 
employees lived and remained in the service to that age. The fact 
was bitterly resented that many employees contributed for years to 
their pensions but, dying in harness, or soon after retirement, had to 
forfeit all or nearly all they had thus set aside, while their famiUes 
were perhaps left in want. The fact, too, that pensions were paid 
those who had entered the service prior to August 4, 1829, without 
deductions being made from their salaries, and on a more hberal 
scale than that allowed the general body of the service, was another 
cause of discontent. Because of these various inequities and dis- 
criminations the dissatisfaction of the service with the provisions of 
the act came in time to be very intense. 

In 1846 a large number of civil employees formed themselves into 
an association for the purpose of bringing their grievances to the 
attention of Parliament. This association was in existence for about 
ten years, during which time it worked out various data and classi- 
fications which it laid before a select committee of the House of 
Commons appointed in 1856 to consider the regulations respecting 
the grant of superannuation allowances to members of the civil 
service. Besides desiring that the scale of pensions should be made 
more liberal, and that pensions should be granted free by the State, 
one branch of this committee of civil servants was desirous that 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN, 13 

Gompiilsory deductions should continue to be made from salaries, 
but that they should be used to create a mutual insurance fund. 

The Select Committee took testimony from a great number of 
public officials and clerks and also engaged the services of two actua- 
ries to investigate the question of the sufficiency of the deductions 
made from the salaries of the civil servants to meet the pensions 
provided under the Act of 1834. To the surprise of the public gen- 
erally, since an impression to the contrary had prevailed, the actua- 
ries reported that the contributions of the civil servants were not 
adequate to meet the charges to which the public was liable under 
the Act of 1834. In other words, had the deductions from salaries 
been funded from the first, the fund would, by that time, have been 
hopelessly insolvent. 

Before the report of the actuaries had been submitted, however, 
the Civil-Service Superannuation Commission, which succeeded, the 
Select Committee, had recommended the abolition of the contribu- 
tory system on the ground of its inequities and the consequent dis- 
satisfaction of the civil employees with its provisions. Section 
XXVII of the Superannuation Act of 1834, providing for deductions 
from salaries, was accordingly repealed in 1857. 

Following this repeal, the Superannuation Act of 1859 was passed. 
It repealed most of the Act of 1834 and established a system of 
uniform free pensions for all persons employed in the '^ permanent 
civil service of the State." The scale of pensions established was 
that of one-sixtieth of salary for every year of service, with a maxi- 
mum allowance of forty-sixtieths. Retirement on a superannuation 
allowance was permitted at the age of 60, or in case of mental or 
physical infirmity after ten years' service, but no powc^r was given 
the State to compel retirement at any age. In cases of infirmity 
when the period of service had been less than ten years, a gratuity of 
one month's pay for each year of service was given. The desire of 
the civil employees for the creation of an insurance fund was ignored. 
As regards the main body of pensionable civil employees the scheme 
inaugurated in 1859 has remained substantially unaltered down to 
the present year (1909). 

The Superannuation Act of 1887 and the Workmen's Compensation 
Act of 1906 have made supplementary provision for the award of 
pensions and gratuities to various classes of government employees 
not provided for by the Act of 1859. There are also special acts 
relative to the pensions of judges, diplomatic and consular officers, 
colonial governors, police and constabulary, elementary-school teach- 
ers, etc. Except in the case of the elementary-school teachers, who 
have a contributory fund, these pensions have been paid f)ut of the 
public treasury. No special funds are set aside for the purpose, but 
Parliament votes from year to year the amount required. 



14 CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 

Although it might be supposed that the estabhshment of a straight 
pension system would have been entirely satisfactory to the em- 
ployees themselves, the evidence submitted to various select com- 
mittees and special commissions shows that such was not the case. 
The theory gradually gained ground — especially after the investi- 
gation of the civil establishments made by the Ridley Commission in 
1886-1888 — that the pensions were taken into account in fixing 
salaries, and that the salaries were accordingly less than they would 
be had no pension system been adopted. This theory was based 
on the contention that pensionable members of the civil service are 
paid less than nonpensionable members. The Ridley Commission 
recommended that a deduction of 5 per cent of salaries be set aside 
to form a savings account, but the recommendation was not acted 
upon. 

A committee of employees, which took the name of the Deferred 
Pay Committee, was organized, and as a result of their agitation, the 
Courtney Commission was appointed in 1902 to investigate the 
grievances of the civil employees. The latter held that not only 
were their salaries lower than they would have been had the pension 
system not been adopted, but that the amount withheld from their 
salaries was more than sufficient to pay the pensions. They thought 
at first that they had high Treasury authority for believing that from 
16 to 20 per cent was withheld from salaries to pay pensions. Know- 
ing that that per cent of pay is considerably more than had been 
found necessary in industrial pension system.s for the payment of 
retiring allowances, they asked that life insurance be given them in 
addition to the pension and as an offset to the excessive deductions 
from salary. Inquiry developed the fact that the current idea that 
from 16 to 20 per cent was deducted from salaries was based on an 
erroneous interpretation of statements made by Treasury officials. 
The employees then urged that an investigation be made to ascer- 
tain just what percentage of salary was being deducted for that pur- 
pose. This request was not granted, the commission holding arbi- 
trarily that no more than the amount necessary to pay pensions 
was withheld from salaries. They recommended, therefore, that life 
insurance be granted the employees, not in addition to the pension, 
but in substitution of part of it. 

The recommendations of the Courtney Commission were submitted 
by the Deferred Pay Committee to a plebiscite of the civil service, 
with the result that 80 per cent of the service declared themselves 
in favor of the change. On September 20, 1909, a law was accord- 
ingly passed reducing the amount of the pension by one-quarter, 
and substituting in its place a provision for a cash payment in case 
of death or retirement from the service. Instead of receiving a 
pension of one-sixtieth of salary for each year of service rendered, 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 15 

as formerly, the civil employee of England will receive, henceforth, 
a pension of one-eightieth of salary for each year of service. Since 
the maximum period of service which is recognized is forty years, it 
follows that the pension is reduced from a maximum pension of 
two-thirds pay to a maximum pension of one-half pay. To balance 
this reduction of pension several new benefits are given. Any 
employee who retires after two years' service gets, in addition to the 
pension (if any) or the gratuity (if any), an additional lump-sum 
allowance of one-thirtieth of his annual salary for every year he has 
served. In case an employee dies after five years' service, a cash 
sum, as a life insurance, equal to one year's pay, is given to his legal 
representatives. If an employee dies after he has retired from the 
service, before receiving the whole of a year's pay, the State pays 
the difference to his family. 

This last legislation must be regarded as a recognition of the 
employees' contention that, in fixing salaries, the practice has grown 
up of taking into account the value of the pension. The civil pension 
in England has come to be the equivalent of a deferred annuity paid 
for by the difference between the salary actually received and the 
salary that would be received were there no pension. Hence, in 
practical operation, the pension system of England is virtually a 
contributory system. (°) 

The cost of the British system is interesting. Under date of Feb- 
ruary 19, 1909, the British Foreign Office made the following state- 
ment, in reply to an inquiry sent out by the Department of Com- 
merce and Labor concerning Great Britain's pension plan for civil 
servants : 

Speaking generally, the greater part of the clerical establishment of 
the civil service (except persons engaged in routine duties such as 
copying) is pensionable, while in the arsenal, dock yards, etc., pension 
rights are, as a rule, confined to the directing posts, and a proportion 
only of the lower staff. The number of existing civil pensioners is 
approximately 22,500, and the amount voted for pensions, etc., in 
respect of the civil service proper (i. e., exclusive of provision for ele- 
mentary school-teachers, constabulary, and police), in the current 
year, was £ 1 ,842,260 ($8,965,358). The great majority of existing pen- 
sioners are men, the employment of women in the public service in 
anything like considerable numbers being of comparatively recent date. 

What the total noneffective charge is, including pensions for the 
established employees and gratuities for the nonestablished, besides 
the pensions payable to teachers, constabulary, police, members of 
the judiciary, and other public servants provided for under special 
acts of Parliament, is not given. Since, however, the total charge for 
pensions, gratuities, and compensation allowances was stated in 
1902-3 to the Courtney Commission to be approximately two and a 

oSee Conclusions, p. 181. 



16 CIVIL-SEE VICE EETIKEMENT IN GEEAT BEITAIN. 

half million pounds ($12,166,250), it is safe to estimate that it is no 
less than that in 1909. That it will grow less is very unlikely, for 
the history of civil pensions throughout the world shows that there 
is always a constant tendency to extend the benefits of a pension 
system to new classes of public servants. 

SUPERANNUATION PROVISIONS BEFORE 1810. 

From an early date it seems to have been taken for granted in 
Great Britain that the Government was under a moral obligation to 
make provision for its civil employees in case of retirement from 
office by reason of age or infirmity. Such an opinion was rendered 
by the commissioners of inquiry appointed in 1786 by the act of 25 
Geo. 3, c. 19, to inquire into the fees, gratuities, perquisites, and 
emoluments received in certain public offices. It was indorsed in 
the report of the three principal Secretaries of State to the Lord 
President, dated February 23, 1795, in the following words: 

When an officer either from age or infirmity is obliged to retire, we 
agree with the commissioners in opinion that a decent provision ought 
to be afforded him, and we do not see that any objection can arise to 
its being paid out of the general fund; but with respect to the extent 
of such provision, we think it ought to be decided on a consideration 
of the merit and service of such an officer, and not by any fixed rule. 

Pensions to officers of the Crown, especially those who had held 
high and important positions in the civil service for a shorter or 
longer period, had accordingly been granted from time to time. 

Through Life Offices, Sinecures, Pluralism, and Substitute 

Schemes. 

Not, however, until the beginning of the nineteenth century was 
any general system of superannuation established. Before that 
time, recourse was had to inconvenient devices for securing the funds 
necessary for the payment of old age and infirmity allowances. 
Public officers who retired from the civil service were provided for in 
various ways. In some cases the practice of granting certain offices 
for life dispensed with the necessity of any such provision. The case 
of an employee in the Treasury, who had become superannuated 
without retirement, was noted in the following language by the 
commissioners of 1786: 

The attendance of one of the chief clerks having been of late years 
dispensed with on account of his age and infirmities, the duty has 
devolved entirely upon the remaining three, who have been found 
sufficient for the execution thereof. (") 

In some cases the existence of sinecures proved a haven for the 
worn-out and inefficient. In the opinion of the Commissioners of 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 17 

Inquiry, for instance, the establishments of the Home Secretary, with 
an office force of sixteen, and the Foreign Secretary, with a corps of 
fifteen, might have been maintained with half the number. They 
said: 

From what we have been able to collect, the general business of 
the office is scarcely sufficient to furnish full employment for the 
clerks at present borne upon the establishment, and we consider 
their present number as rather to be justified by the propriety of 
having fit persons always in readiness upon any extraordinary 
pressure of business than from the degree of employment which the 
office ordinarily affords. If they were reduced to eight in each 
department, Your Majesty's service might not suffer from such 
reduction. ( ") 

Only the official records can give any adequate idea of the extent 
of pluralism in the British civil service during the eighteenth century. 
Provision was made for old age by officers in active service through 
saving and investment of incomes derived from offices, the duties of 
which were executed by deputies. For years almost every officer of 
rank in the Treasury had some provision of this kind. In other 
departments also there were many receiving double salaries. The 
receiver-general of the Post-Office was a commissioner of the Salt 
Office. The superintending president of the Post-Office was searcher 
of the customs for the port of Chichester. The receiver and registrar 
of the Hackney Coach Office was comptroller of the Tea Warehouse 
under the Board of Customs. Nor was the system confined to the 
higher appointments. A clerk in the Penny Post-Office was also 
deputy to the husband of the Four-and-a-half per cent duties in the 
Customs. A messenger in the Bye-letter Office was a stamper in the 
Stamp Office. Concerning this state of things the commissioners of 
1786 had this to say: 

So far as these emoluments (alluding to those arising from sinecures) 
have been applied to increase the incomes of officers inadequately 
paid, and to form a provision for them on retirement, but so far 
only they have been of use, and, while officers remain on their present 
footing, are, perhaps, in some degree, necessary. But we think that 
an establishment may, and ought in wisdom, to be found, in which 
such a species of emolument would be superfluous and redundant; 
an establishment by which every public officer should be paid for 
his services, not under false pretenses and in uncertain measure, 
but openly, and in proportion to the service he performs; an estab- 
lishment which should entitle him to a provision upon retirement, 
not dependent upon caprice or accident, or arising from the per- 
petuation of abuses, but known and certain, free from the competition 
of individuals, or the animadversion of the public. (^) 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 151. 
& Idem, p. 154. 

35885— S. Doc. 290, 61-2 2* 



18 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

The practice, at that time common, of charging the salaries of 
public officers with retiring allowances to their predecessors — a form 
of what is now advocated in the United States in certain quarters 
under the name of the ''substitute plan" — afforded still another 
means of providing for retired employees. The following case was 
noted in the Treasury by the Commissioners of 1786: 

The keeper of the papers has a salary of £400 [SI, 946. 60] a year, 
reduced by the one shilling duty, and an allowance of £40 [$194.66] 
to his deputy, to £340 [$1,654.61], the whole of which he pays to 
Thomas Pratt, esq., during life, who resigned office in his favor in 
the month of January, 1783. C'^) 

A similar and more flagrant case recorded by the commissioners in 
their report on the Post-Office Department was that of the packet 
agent at Dover, who granted allowances to his predecessor and received 
them from his successor in another office. 

He has a salary of £150 [$729.98] a year, reduced by taxes, etc., 
to £123, 13s. 8d. [$601.90]; he has an allowance of £200 [$973.30] 
a year for providing extra boats when the service requires, reduced 
by agency m London to £194, 18s. 8d. [$948.64], and an allowance 
of £10 [$48.67] a year for stationery; he likewise derives certain 
emoluments from agency on the passage, which is at the rate of 10s. 
in every guinea on what is called 'allowed freight;' the average of 
which, from the 15th July 1775, to the 5th January 1787, being 
eleven years and a half, was £941, 18s. [$4,583.76], making the 
average of his net annual receipt £1,270 10s. 4d. [$6,182.97], which 
he now receives for his own use; but previous to the death of Mr. 
Barham, which happened in October last, he paid to him £800 
[$3,893.20] a year, as a compromise for the clear annual income of this 
office, which by order of the Postmaster-General, dated 16th Novem- 
ber 1774, he was directed to pay to him during his life; to indemnify 
him for such payment, he was to receive from Mr. Lees, his successor 
in Ireland, the clear annual income of his office, as secretary to the 
Post Office there, during the life of Mr. Barham, which was likewise 
compromised for a net payment of £750 [$3,649.88] during the life 
of Mr. Barham, and of £150 [$729.98] annually after his death; 
which engagement is now in force, and will add so much to his 
annual receipt. ( ^) 

Through Funds Created in Various Departments from Fees 

AND Taxes. 

The power then existing in different departments of granting pen- 
sions chargeable upon various funds, such as fee funds and contin- 
gencies, offered another means of providing for the superannuated. 
The commissioners of 1786 found three instances in the Treasury in 
which allowances had been charged to the fee fund, which proved 
inadequate for the strain thus put upon it. The record is as follows: 

O' Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. 
t> Idem, p. 153. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 19 

One of the three superannuated clerks, Thomas Tomkins, retains 
only his salary of £100 [$486.65] out of the civil list. The two others, 
Frederick Reynolds and James Royer, have allowances by order of a 
minute of the Treasury Board of 16th December 1783, of £300 
[$1,459.95] a year each, charged on the fee fund, besides which the 
latter has a salary of £200 [$973.30] a year out of the Customs, having 
been formerly a clerk in the Revenue Office, and his name still remain- 
ing on that establishment; but Mr. Royer, notwithstanding frequent 
applications, has not yet received any part of his allowance of £300 
[$1,459.95] a year out of the fee fund, this fund not having proved 
sufficiently productive for that purpose, in which case the minute 
directed that it should be paid out or any other fund the board might 
think fit. («) 

From taxes levied on official salaries an annual sum was obtained 
which formed a substantial addition to the national revenue and was 
regarded as an offset to the amount paid out by reason of superan- 
nuation in office. The taxes so levied appear to have been three in 
number. A land tax, amounting in certain cases to a deduction of 20 
per cent and originally intended to operate as an equitable income 
tax on real and personal property, was still charged on some classes of 
salaries. A duty of 6d. in the pound (termed the civil-hst duty) and 
a duty of Is. in the pound were also imposed. The amount produced 
in 1796 from these two last-named duties was no less than £73,991 
($360,077.20). These duties were not collected, of course, without 
expense. The receivers were remunerated by a poundage; ''one 
class of servants having, it must be presumed, been overpaid, it was 
necessary to pay others in order to cover the excess." In cases 
where salaries were avowedly not more than sufficient, it was pointed 
out by the commissioners that such taxes only recoiled upon the 
public "by creating Hew claims to consideration, which must in 
justice besatisfied," and they recommended, therefore, that the salaries 
of officers should be exempted from all taxes and duties. 

As afterwards pointed out by the Commissioners of 1857, any such 
mode of retiring servants as those just described, was ''obviously 
most objectionable in principle, and liable to great abuse in practice, 
both as regards due economy in the pubhc expenditure, and the fair 
and equal remuneration of public servants. Indeed, it may be 
doubted whether such a state of things could have continued so long, 
had not the whole number of civil servants been at that time small, as 
compared with the amount of our present establishments. In time, 
however, it became apparent that, if a provision were to be made for 
retired servants, the objectionable means hitherto employed for that 
purpose had become quite inadequate; as well from the great increase 
in the number of civil servants, as from the effects of financial reforms 
in drying up the Sources from which means had been obtained." 

« Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. 



20 civil-seevice retirement in great britain. 

Through Funds Created in the Excise and Customs by Deduc- 
tions FROM Salaries. 

An attempt was made, therefore, early in the nineteenth century, 
to estabHsh a system of granting superannuation allowances, and to 
make it apply to the rank and file of the civil service as well as to 
the high officials. From a very early period superannuation funds 
had existed both in the departments of Excise and of Customs. 
The Excise fund, which was originally called "The Excise Charity 
Fund," was established by a Treasury minute, dated February, 1686, 
by a deduction of 3d. in the pound on the salaries of all ''general 
riders, general supervisors, collectors, surveyors, gangers, and clerks." 
In the disposal of the money the following rules were to be observed: 

First. No officer who had not served seven years was to receive 
any sum of money or pension, unless disabled by accident. 

Second. The pensions were to vary according to the grade of the 
officers, the maximum being £30 (S146) and the minimum £15 ($73). 

Third. No officer was to be allowed a pension, if, from any other 
source, he possessed an income equal to the pension assigned to 
his grade. 

An act (49 Geo. 3, c. 96) was passed in 1809, which granted to 
officers incapacitated by age or infirmity, after ten years' service, 
three-fourths of their salary, taken on the average of the last seven 
years. The same proportion of last salary was granted to officers 
disabled by accident, irrespective of length of service, but it was 
provided that no such superannuation should be granted to an 
officer in receipt of less than £180 ($875.97) per annum. 

The Customs fund appears to have existed at least as early as the 
year 1708. It was confined at first to the inferior officers of the 
service. The rate of deduction was 3d. in the pound and the fund 
was increased by the fines imposed on officers for breach of discipline. 
Gradually the benefit of the fimd was extended to classes higher in 
rank than those for which it had originally been formed. A Treas- 
ury warrant of 1779 added landing surveyors, landing waiters, and 
other superior officers. Fees belonging to 196 offices, abolished in 
1798 by the 38th of Geo. 3, c. 86, were turned in to the superannu- 
ation fund. 

The first formal proceedings of the Government looking toward 
the establishment of a general system of superannuation allowances 
are found in Treasury minutes of 1802, 1803, and 1807. The first 
minute, dated July 30, 1802, granted allowances ranging from £100 
($486.65) to £200 ($973.30) on retirement in consequence of physical 
infirmity, under the name of compensation, to a few. classes of officers 
of the Customs. No regulations were made as to age or length of serv- 
ice. The second minute, dated the 10th of August, 1803, was passed 



CIVIL-SERVICE RETIREMENT IlST GREAT BRITAIN. 21 

because the Lords of the Treasury had discovered that the allowances 
granted the previous year did not bear a fair proportion to the 
emoluments of the respective offices. They fixed, therefore, the 
sums which were to be taken as the annual incomes of the several 
grades and then prescribed a graduated scale of allowances, accord- 
ing to which one-third of the salary was allowed to officers who had 
served ten years and were reported incapable of executing their duties ; 
one-half was allowed after service of from ten to twenty years, and 
two-thirds after twenty years, to officers retiring at less than sixty 
years. In the case of officers more than sixty years of age two-thirds 
of salary was allowed after only fifteen years of service. The third 
minute, dated November 7, 1807, extended the arrangement to 
numerous other classes of officers of the Customs, and in this position 
the matter stood at the passing of the general act of 1810. 

SUPERANNUATION ACT OF 1810. 
Report of Committee of 1808 the Basis for Act of 1810. 

In the year 1808 a report was made by the Committee on Public 
Expenditures on the subject of the pensions, sinecures, and rever- 
sionary grants paid out of the public revenues, which led to the first 
general enactment on the subject of superannuation. Although there 
was at that time no regular system of superannuation, except in the 
Customs and Excise, as explained above, a large number of retired 
allowances, included under the general head of "pensions," came 
under the notice of the committee. The entire want of fixed rules 
governing the grant of superannuation allowances was noted and 
deplored by them. Their attention was drawn particularly to a 
large amount of "dead wood" in some offices, the practice having 
arisen, in case of deficiency of the fee fund, of carrying pensioners on 
the regular civil list. This meant that much of the sum voted for any 
oflSce for current expenses was not paid out in the form of salaries to 
those carrying on the work, but was spent for pensions to those no 
longer able to work. The committee held that "annual allowances 
ought not to be granted generally, and without special reasons, to 
persons retiring from official situations," and that when pensions 
were granted in any office the accounts should be kept entirely 
separate from the salary account. 

In view of the loose way in which provision was made for the pay- 
ment of superannuation allowances, the committee recommended 
that a stricter account be kept of pensions granted and the reasons for 
their bestowal. They suggested the expediency of limiting allowances 
to a certain proportion of the former salary and laid stress on the 
principle that duration of service should be taken into consideration 



22 CIVIL-SERVICE EETIEEMENT IF GEEAT BEITAIN. 

in fixing the amount of the allowance. Their recommendations are 
contained in the following extract: 

Under all these circumstances your committee do not hesitate in 
submitting to the House, that all allowances in the nature of pensions, 
which are not strictly superannuations, should be classed under their 
proper head, and paid at the exchequer; preserving, at the same time, 
entries of such pensions, together with the circumstances under which 
they have been granted, on the establishment of the offices in which 
the services have been performed. 

It may be also expedient to limit the sums in which allowances may 
be applied to cases of superannuation, so as not to exceed a certain 
proportion of the former salary. 

The regulations under which superannuations are granted in the 
Customs deserve the attention of the House, as uniting a due con- 
sideration toward long and meritorious service, with a just atten- 
tion to economy. 

By a resolution of the House of Commons of Ireland, 7th April 
1784, no yearly allowance was permitted to be placed on incidents 
in cases of superannuation, except for officers who shall have served 
forty years without censure, or officers who shall have received a 
wound or hurt in the service, amounting to a total disability, or 
for widows of officers who shall have lost their lives in the service of 
the revenue; but by a subsequent revision of that resolution, 26th 
July 1793, twenty-five years were substituted instead of the term 
of forty years, as being sufficient to answer the purposes of the said 
resolution respecting the placing on incidents any yearly allowance 
for superannuated officers of the revenue, who have already served, 
or shall have served, the said term of twenty-five years without 
censure. 

These general, unqualified expressions, have been, perhaps, liable 
to misconstruction, as if they were calculated to convey a sort of right 
of superannuation after twenty-five years of service ; whereas it is to 
be presumed that it never would have been the intention of the House 
of Commons to countenance a new claim on the part of the officers, 
but, on the contrary, to impose a restraint upon executive govern- 
ment, from granting any such allowances even to superannuated offi- 
cers, unless where they had served meritoriously the prescribed num- 
ber of years, or had otherwise been incapacitated in the public serv- 
ice, as described in the resolution. 

With regard to the salary and emoluments of each separate depart- 
ment, the public ought unquestionably to be served as cheaply as is 
consistent with being served with integrity and ability; but it must 
be recollected that what makes office desirable in the higher depart- 
ments is not the salary alone, but the consequence and consideration 
attached to it, the power of obliging fTiends, and of creating depend- 
ents ; and in the lower degrees the chance of gaining advancement by 
industry and talent. The principle of gradually increasing salaries 
after certain periods of service, and at fixed intervals, if they are not 
made too short, is highly to be approved, as holding out a due encour- 
agement to diligence and fidelity. In all cases of superannuation, 
duration of service should be an essential requisite, and even then 
regard should be had to the condition of each individual, as to his 
ability of continuing the official labors, and to his situation in life 
from other causes. 



I 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 23 

In many instances, where allowances have been granted as com- 
pensation for the loss of office, or upon the plea of superannuation, 
the persons who have obtained them have, at subsequent periods, 
been appointed to other offices, in both which cases it is obvious that 
the allowances ought to have ceased. 

The true principle applicable to all offices is, that public money 
should not be granted without reference to duty; and all exceptions 
whatever ought to be justified under the special circumstances attend- 
ing such case.(") 

Main Features of the Act. 

As a result of the report of the Committee on Public Expenditure 
and their recommendation that the regulations under which super- 
annuations are granted in the Customs should be considered by the 
House, "as uniting a due consideration toward long and merito- 
rious service, with a just attention to economy," the Act of 1810 
(50 Geo. 3, c. 117) was passed. The principal features of this act 
were the provision for an annual statement of the increase and dimi- 
nution of public salaries, pensions, and allowances, the prohibition of 
the practice of charging superannuations or compensations on the 
expenses or funds of any office without the concurrence of the Treas- 
ury, and the separation of military and naval pensions from civil 
allowances in the annual estimates of the Army, Navy, and Ordnance. 
Provision was also made that in offices having a fee fund, compensa- 
tion and superannuation should be chargeable in the first instance 
on such fund, the deficiency, if any, being made good, in the offices 
of the Secretary of State, the Privy Council, and the Treasury, out of 
the civil list; in other cases by a parliamentary vote. The scale of 
remuneration was similar to that prescribed by the minute of 1803 
for retired officers of the Customs, with the addition that any officer 
over 65 years of age might receive a pension of three-fourths of salary 
in case he had served forty years or more, or the whole of salary in 
case his length of service had been fifty years or more. 

Since this act made pensions to Customs and Excise officers payable 
out of the public revenues, a Treasury minute was passed March 26, 
1811, directing that the accumulated Customs fund, consisting of 
about £165,000 ($802,972.50) stock should be paid into the exchequer. 
Two acts were passed in the year 1812 directing that the Excise fund, 
consisting then of £73,900 ($359,634.35) three per cent consols, the 
value of which was £45,324 ($220,569.25), should also be paid into 
the exchequer. (^) 

The superannuation funds which existed in the Customs and 
Excise having been appropriated by the Government and paid into 

a Report on the Operation of the Superannuation Act. 1857. Appendix XII, pp. 
154, 155. 

b Report on Civil Service Superannuation. 1856. p. 2. 



24 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 

the exchequer, there existed then under the Act of 1810 a general 
system of granting superannuation allowances to the civil service out 
of the revenues of the country without the existence of a superannu- 
ation fund of any kind. This act continued in force for twelve years, 
and during that period pensions were granted from the Consohdated 
Fund without any abatement from salaries, and entirely at the cost 
of the public. 

The Act of 1810 was undoubtedly intended to operate as a check 
upon the grant of pensions. It had, however, exactly the opposite 
effect. The act made no regulations to check retirements from office. 
The liberaHty of the pension scale established was really a tempta- 
tion to seek retirement. It should be noted that although one-third 
was fixed as the maximum allowance for ten years' service, the Treas- 
ury was left at liberty, as soon as the ten years had been exceeded by 
the smallest interval, to grant one-half. Furthermore, the superan- 
nuation was to be calculated upon the salary of which the individual 
was in receipt at the time of retirement, not on the average of that 
received during a certain number of years. A great increase in the 
pension charge resulted. The charges of the years 1810 and 1820 for 
superannuation allowances, including compensations for loss of office, 
in the purely civil departments were, respectively, £94,550 ($460,- 
127.58) and £291,068 ($1,416,482.42), and those of the civil branch 
of the Ordnance Department had increased from £27,916 ($135,- 
853.21) to £54,718 ($266,285.15). («) 

SUPEKANNUATION ACT OF 1822. 

Treasury Minute of 1821 the Basis for Act of 1822. 

The next important step in the history of English superannuation 
measures was taken by the Treasury. In a minute of August 10, 
1821, it laid down a principle that proved to be extremely influential 
in the subsequent legislation on the subject. This was a period of 
marked reduction in public expenditure following . the war, and it 
was the spirit of retrenchment which animated the Treasury minute. 
"My Lords are of opinion that it is essentially necessary that some new 
regulations should be adopted, with a view of limiting this branch of 
the public expenditure in future (that is, the superannuation allow- 
ances), and they are of opinion that the mode of regulation which 
seems in all respects most eligible, is, to require that the individuals 
themselves who may hereafter enjoy the benefit of superannuation 
allowances, should be called upon to contribute to a superannuation 
fund, to be administered under the direction of their Lordships." 
This Treasury minute contained recommendations for a plan along 
the lines afterwards established by the Act of 1822. On January 8, 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 157. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 26 

in the following year, another minute was issued recommending a 
general revision of the salaries of the civil establishments. 

Main Features of the Act. 

Based on these two minutes, an act of Parliament was passed in 
August, 1822 (3 Geo., 4, c. 113), which granted the same liberal scale 
of retiring allowances authorized by the Act of 1810 but required con- 
tributions from all civil servants whose salaries exceeded £100 
($486.65) per annum. This act required that upon salaries between 
£100 ($486.65) and £200 ($973.30), 2^ per cent should be deducted; 
that upon salaries of upwards of £200 ($973.30), 5 per cent should be 
deducted, to the extent of the regulated salary authorized by the 
minute of January, 1822; and that for any salary which any officer 
then holding office might receive above the regulated amount, 10 
per cent should be paid. It was also directed that the abatements so 
made from salary should be formed into a fund, to be carried to the 
credit of the commissioners, for the reduction of the national debt at 
the Bank of England. Provision was made that, if any civil servant 
died in office, the whole amount of his contribution was to be paid to 
his legal representatives. Even after his resignation or removal 
from ofiice, his contribution was paid back to him, provided he had 
not received any benefit from the fund. 

The object of this act was thus explained by the Chancellor of 
the Exchequer : 

The persons who, in ordinary cases, were to receive these allow- 
ances, it was intended to make contribute to a fund out of which 
such allowances in future were to issue. That arrangement would 
operate as something like reduction of salaries; but it would be a 
case of infinitely less hardship to make persons contribute in the 
active part of their lives to a fund which, ia the decline of life and in 
retirement, would be a provision for them, than suddenly, and at one 
blow, to cut down their salaries without holding out any correspond- 
ing advantage. C^) 

Repeal of the Act. 

This law held less than two years, for on June 24, 1824, it was 
repealed by an act of Parliament (5 Geo., 4, c. 104), which directed 
that all superannuation allowances granted after that date were to 
be paid from the Consolidated Fund and all contributions received 
under the previous act were to be returned to the contributors. 
There is a Treasury minute, dated January 25, 1824, which contains 
the details of that repayment. The sum then in hand, after pay- 
ing the few pensions during the interval, amounted to £107,800 
($524,608.70), which was repaid in the proportions there specified. C") 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 158. 
6 Report on Civil Service Superannuation. 1856. p. 3. 



26 CIVIL-SERVICE EETIEEMENT IN GEEAT BRITAIN". 

The reason for the repeal of the Act of 1822 was the plea on the 
part of the civil servants that compulsory deductions from their 
salary constituted a violation of contract on the part of the Gov- 
ernment. The debates which occurred in Parliament on the subject 
indicate that the repeal was made entirely on that ground. The 
system of deductions was not popular with either Parliament or the 
civil service. 

In the meantime the charge of superannuation allowances con- 
tinued to increase. In 1827 it amounted, including compen- 
sation allowances, in the purely civil departments to £484,081 
($2,355,780.19); in the civil branch of the Ordnance to £64,364 
($313,227.41). («) 

SECOND PERIOD OF FREE PENSIONS (1824-1829). 
Report of Select Committee of 1828, Recommending Reestab- 

LISHMENT OF SySTEM OF DEDUCTIONS. 

In the year 1828 the Select Committee on Public Income and 
Expenditure made important recommendations in regard to the 
salaries and pensions of civil employees. This committee inquired 
into the salaries given to the clerks in the India House, the Bank 
of England, two insurance offices, and one of the principal banking 
houses of London, and compared them with the salaries granted 
clerks in the civil service. As a result of this inquiry they stated 
in their report on salaries that "there does not appear to be any 
fixed system of superannuation allowances in commercial houses, 
and although some such allowances are given, the amount of them 
is small." They then proceeded to indorse the principle of deduc- 
tions from salary for the purpose of creating a superannuation fund 
in the following language: 

The committee are aware that there is not a strict analogy between 
the duties performed by clerks in public offices and those in commer- 
cial establishments; still, as far as comparison can be made, it appears 
that the salaries in the Ordnance Department admit of diminution. 
At present, without precluding themselves from hereafter advising a 
further reduction on a general and systematic principle, should it 
appear proper on more accurate investigation, they confine them- 
selves to a recommendation to revert to the principle laid down in 
the minute of the Treasury in 1821, of making these salaries sub- 
ject to a charge for forming a superannuation fund, the details of 
which they intend in the course of a few days to submit to the House 
in a separate report on superannuation allowances, half -pay, and 
pensions. (^) 

In the committee's report they accordingly recommended the 
reestablishment of the system of deductions. They alluded with 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 158. 
b Idem, p. 159. 



CIVIL-SERVICE KETIKEMENT IN GEEAT BEITAIN. 27 

approbation to the principle laid down in the Treasury minute of 
August 10, 1821, that pensions should be provided by making deduc- 
tions from the salaries of the persons entitled to them. The select 
committee proposed that deductions should be made from all 
salaries, both of those who had taken service previously to that date 
and of those who might afterwards enter the service. They recom- 
mended that those already in the service should be pensioned on 
the then existing liberal scale (the difference between the value of 
their pensions and the value of their contributions to be made up 
from the public purse), but that those who might afterwards enter 
the service should be given pensions equivalent only to the value 
of the deductions from their salaries so that the public might not 
eventually have to bear any part of the expense of these allowances. 
They pointed out that the loss occasioned the public by the repeal 
of the Act of 1822, which they considered to have been an admirable 
measure, was no less than £500,000 ($2,433,250). They stated that 
from 1822 to the end of 1827 the superannuation and compensation 
allowances had increased in annual amount from £331,746 ($1,614,- 
441.91) to £484,081 ($2,355,780.19). («) 

The Chancellor of the Exchequer accordingly introduced a bill 
founded upon this report, and intended to give effect to the recom- 
mendations contained in it. He introduced it in language which 
showed plainly enough that the main interest of the Government in 
connection with the bill was the reduction of expenses rather than 
the establishment of a model superannuation measure, and that the 
deduction from salaries was preferred to a reduction of salaries. His 
speech is reported as follows: 

The House had appointed a committee for the purpose of revising 
the expenditure of the country; and that committee had almost 
unanimously declared that such a measure as that which he had 
introduced ought to be carried into effect. Standing in the situa- 
tion which he had the honor to fill, he should have been charged with 
a high degree of cowardice, if, after such a recommendation, he had 
refused to bring the measure before the House. On that account 
he was prepared to vindicate the bill, and to state the reasons on 
which the committee had come to their decision. The whole expendi- 
ture for the service of the country, the committee found to amount 
to twenty-one millions, and of this, five millions were appropriated 
to the ineffective service, including superannuation, pension, and 
retired allowances. The committee was anxious not to deprive the 
country of the active service of those who were engaged in the public 
departments; and they therefore turned their attention to consider 
if it were possible, without any deviation from just principle, pros- 
pectively to diminish the expenditure for services that were passed. 
Of the five millions which the ineffective service of the country cost, 
the committee found that nearly half a million was appropriated to 
the payment of the civil pensions, and this sum has been increased 

oReport on the Operation of the Superannuation Act. 1857. Appendix XII, p. 160. 



28 CIVIL-SERVICE KETIEEMENT IN GREAT BRITAIN. 

within a few years from £330,000 [$1,605,945] to £447,111 [$2,175,- 
865.68]. Finding that this sum was increasing so rapidly, they 
thought it their duty to recommend the measure before the House. 
He knew that the committee had balanced long between a reduction 
of the salaries, and this measure of making the officers contribute 
to their own superannuation. He, for one, opposed the reduction of 
salaries, because they had been fixed in the year 1821, after the effects 
of peace had been fully felt, and the measures for restoring the metal- 
lic currency had been adopted. It was better, on the whole, he 
thought, and the least likely to affect the future prospects of the 
different officers of our civil establishments, to adopt this measure 
relative to their superannuation, than to alter their salaries. ('*) 

Sir Henry Parnell also stated that the opinion of the committee 
was in favor of a considerable reduction of salaries, but that they 
had taken, instead, a course much more favorable to the clerks, 
namely, that of proposing to reduce them by a small percentage, in 
the way provided in the Act of 1822. And he added his conviction 
that "the clerks had much better consent to this arrangement than 
defeat it, and thus make it necessary to examine more closely what 
ought to be the exact reduction which the public interests required 
to be made." 

The bill was withdrawn, however, in consequence of an objection 
made on hehalf of the civil servants, on the same ground as before, 
that the imposition of deductions would, as regards them, be con- 
trary to their terms of service. Strong statements were also made 
to the effect that the salaries were not sufficiently high to bear 
deductions, although the select committee had recorded its opinion 
otherwise, as follows: 

It is obvious that in recurring to the provisions of the Act of 1822, 
the rate of salary attached to each office should be such as may be 
deemed fairly sufficient to bear the deduction which it is proposed to 
make from it; and when it is considered that the Treasury revised 
and fixed the salaries of the several departments in 1821, when the 
deductions in aid of the superannuation fund were first established, 
it does not appear that a revival of that principle would press too 
hardly at the present time, and under the present circumstances of 
the country, upon the fair emoluments of the officers and clerks who 
are now in office. C*) 

Treasury Minute of 1829 Reestablishing System of Deductions. 

Although the bill was withdrawn, Treasury officials did not give up 
the notion of reducing pension charges by exacting contributions 
from the civil servants. They observed that the objection which 
had been made successfully against the Act of 1822 and the proposed 
bill of 1828 that deductions from salary would mean a violation of 
the terms of contract did not apply to future entrants. They accord- 

o Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 160. 
& Report on Civil Service Superannuation. 1856. p. 4. 



CIVIL-SEEVICE KETIKEMENT IN GEEAT BRITAIN. 29 

ingly proceeded to issue the famous minute of August 4, 1829, direct- 
ing that contributions should be paid by those who might afterwards 
be appointed to the service. The text of this important minute 
reads as follows : 

My Lords have under their consideration the necessity of adopting 
some regulation, with a view to reduce, at a future period, the heavy 
charge which is now annually incurred in providing superannuation 
for such persons as are incapable, from infirmity of mind or body, of 
discharging the duties of their public situations. 

My Lords trust that they shall be enabled, at an early period, to 
make such an arrangement as shall be just to parties entering into 
the public service, while it shall ultimately lead to a large reduction 
of expense. 

My Lords therefore deem it advisable that a distinct intimation 
should be given to every individual who may hereafter enter into the 
civil service of the Crown at the time of his admission to office; that he 
will be subjected to a deduction from his annual salary and emolu- 
ments, and to such regulation with respect to superannuation as my 
lords may hereafter lay down. 

Let a communication therefore be made to the several offices 
hereinafter mentioned, directing them, in every case of appointment 
to office, to make such a communication to the person appointed, and 
to make a deduction from all salaries and emoluments not exceeding 
£100 [$486.65] a year at the rate of 2h per centum per annum, and 
from all other salaries and emoluments at the rate of £5 [$24.33] per 
centum per annum, for the purpose of providing, in such manner as 
my Lords may hereafter direct, for superannuation on retirement of 
such persons as shall hereafter enter the civil service. C*^) 

In issuing this minute the Lords of the Treasury acted under the 
general financial powers entrusted to them by Parliament. This 
Treasury minute was in effect nothing more than a prospective regula- 
tion of the salaries of all civil servants who might enter the service 
after the date of the minute. The Treasury had always been accus- 
tomed to exercise the full and entire right of raising and reducing the 
salaries of the lower grades of the permanent civil service, submitting 
the salaries so revised to Parliament, at its next meeting, in the 
estimates. A minute dated June 15, 1832, directed that the fund 
realized by these deductions from salaries was to be invested in 
exchequer bills to be held subject to the disposal of Parliament, and 
it was so held till Parliament decided on the question by the Act of 
1834. After Parliament had sanctioned the deductions by that act, 
the amount of the deductions was directed by a minute of November 
14, 1834, to be stated on the face of the estimates submitted to Par- 
liament for the ensuing year, and to be deducted from the sum voted 
to defray the charge of superannuation and retired allowances. 

Previous to 1832 the superannuation estimate had been confined 
to the pensions of officers of certain departments which possessed no 

« Report on Civil Service Superannuation. 1856. Appendix No. 1, p. 346. 



30 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

fee funds, whereas the pensions of officers of departments possessing 
fee funds (namely, the Treasury, the offices of the three Secretaries 
of State, the Council Office, and the Board of Trade) were not sub- 
mitted to Parliament, though, of course, such pensions contributed to 
the deficiencies in the fee funds which Parliament had to vote. Fur- 
ther, some of the departments without fee funds included the pen- 
sions to their officers in the same estimate as their salaries. 

But in 1832 all that was changed; in the estimates of that year all 
the fee fund pensions, and most of the other pensions hitherto included 
in the votes for salaries in the other departments were brought 
together in a superannuation estimate. The cost, however, of super- 
annuation in the Revenue Departments, the Admiralty, the War 
Office, and the Royal Irish Constabulary was not included in the 
civil service vote, but was provided for in the votes for their depart- 
ments, as will be seen in the various returns showing the annual 
charges for civil pensions. (") 

SUPERANNUATION ACT OF 1834. 

The last stage in this course of legislation was reached when the 
Superannuation Act (4 and 5 Will. 4, c. 24) was passed July 25, 
1834. By this act the Treasury minute of August 4, 1829, requiring 
deductions from salary was confirmed, and by it the old scale of 
pensions prescribed in the Act of 1822 was maintained as regards the 
persons who had taken office previously to the date of the Treasury 
minute of August 4, 1829, but as regards the persons who entered 
subsequently to that date, a lower scale of pensions was prescribed, 
which seemed to be calculated as equivalent to the value of the de- 
ductions directed to be made by the minute, according to the prin- 
ciple of the report of 1829. Section XXVII of the act reciting the 
minute of 1829 and adopting the precise scale of deductions laid 
down in it reads as follows : 

And whereas the commissioners of the Treasury did, by a minute 
dated the fourth day of August, one thousand eight hundred and 
twenty-nine, record their intention to adopt certain regulations with 
a view to reduce prospectively the charge incurred in providing for 
superanhuation allowances, of which notice was given in the several 
public departments, for the information of those who should there- 
after enter the public service: And whereas in pursuance of the said 
minute, an annual abatement hath been made from the salaries and 
emoluments of the several persons who have entered the public 
service subsequent to the date thereof: And whereas it is expedient 
to continue such abatement in those cases, and to extend it to others, 
as herein after provided; Be it therefore further enacted. That from 
and after the passing of this act there shall be an annual abatement 
made, in quarterly proportions, by the proper officer in each respec- 

O' See pages 41-43. , 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 31 

tive department, from the salaries and emoluments of the several 
officers and persons employed in the several civil offices and depart- 
ments specified in the schedule to this act, or to be specffied in the 
addition authorized to be made thereto, and not within the excep- 
tions thereof, who have since the date of the said minute entered or 
shall hereafter enter the public service, in such manner and under 
such directions as shall from time to time be given in this respect by 
the commissioners of the Treasury or of the Admiralty, as the case 
may be, the amount of which abatement shall be according to the 
respective rates following ; (that is to say,) 

Scale of Deductions and Superannuation Allowances. 

From salaries and emoluments not exceeding the annual sum of 
one hundred pounds [$486.65], an abatement after the rate of two 
pounds ten shillings per centum [2 J per cent] ; 

And from salaries and emoluments exceeding one hundred pounds 
[$486.65] five pounds per centum [5 per cent]; 

And in the cases of all persons whomsoever at present holding 
office and entitled to superannuation allowance under this act, who 
shall have been appointed to such office subsequently to the issue of 
the minute of the lords commissioners of His Majesty's Treasury, 
bearing date the fourth day of August one thousand eight hundred 
and twenty-nine, for the future regulation of the several civil depart- 
ments of the public service, and who shall hereafter, upon promotion, 
obtain any increase of salary or allowances in respect of their offices, 
an annual abatement, after the like rates respectively, shall be made 
from the amount of such increase from time to time, commencing from 
the period when the same shall take place. 

The superannuation allowance to persons who had entered the 
service before August 5, 1829, was, according to section IX of the act, 
as follows: 

To an officer, clerk, or person who shall have served ten years and 
upwards, and under fifteen years, any annual allowance not exceed- 
ing in amount four-twelfths of the annual salary and emoluments of 
his office: 

For fifteen years and upwards, and under twenty years, not ex- 
ceeding five-twelfths of such salary and emoluments : 

For twenty years and upwards, and under twenty-five years, not 
exceeding six-twelfths of such salary and emoluments: 

For twenty-five years and upwards, and under thirty years, not 
exceeding seven-twelfths of such salary and emoluments : 

For thirty years and upwards, and under thirty-five years, not 
exceeding eight-twelfths of such salary and emoluments : 

For thirty-five years and upwards, and under forty years, not 
exceeding nine-twelfths of such salary and emoluments: 

For forty years and upwards, and under forty-five years, not 
exceeding ten-twelfths of such salary and emoluments : 

For forty-five years and upwards, and under fifty years, not ex- 
ceeding eleven-twelfths of such salary and emoluments : 

And for fifty years or upwards, any annual allowance not exceeding 
the net amount of the salary and emoluments of his office. 



32 CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 

In contrast to these provisions was the superannuation allowance 
granted by section X to persons who had entered or who might 
enter the service subsequent to August 4, 1829: 

To an officer, clerk, or person who shall have served ten years and 
upwards, and under seventeen years, an annual allowance not ex- 
ceeding in amount three-twelfths of the salary and emoluments of 
his office: 

For seventeen years service and upwards, and under twenty-four 
years, not exceeding four-twelfths or such salary and emoluments: 

For twenty-four years service and upwards, and under thirty-one 
years, not exceeding five-twelfths of such salary and emoluments: 

For thirty-one years and upwards, and under thirty-eight years, 
not exceeding six-twelfths of such salary and emoluments : 

For thirty-eight years and upwards, and under forty-five years 
not exceeding seven-twelfths of such salary and emoluments: 

And for forty-five years and upwards, not exceeding eight-twelfths 
of such salary and emoluments : 

And in no case, except as hereinafter is especially provided, shall 
any superannuation or allowance exceeding two-thirds of the salary 
and emoluments of any such officer, clerk, or person be granted. 

Comparison of Schemes of 1822 and 1834. 

The Superannuation Act of 1834 was the law of the land for twenty- 
three years. It will be noted that it was in every way distinctly less 
favorable to the civil service than the Act of 1822 which, owing to 
the protests of the civil employees themselves, had been thrown out 
after only two years' trial. 

In the first place, the scale of deductions established by the minute 
of 1829 and the law of 1834 was higher than that fixed by the law of 
1822. The scale of 1822 exempted entirely salaries under £100 
($486.65) a year, while the scale of 1829 imposed 2 J per cent on sala- 
ries under £100 (S486.65) a year. The old scale of 1822 imposed 2^ 
per cent on salaries between £100 ($486.65) and £200 ($973.30) a 
year, whereas the scale of 1829 imposed 5 per cent on those salaries. 
In only one respect was the scale of 1822 less favorable than that of 
1829 and that was in respect to the limited number of persons who 
happened in the year 1822 to have their salaries above what had 
recently been settled to be the regulated salaries of the offices, and 
who were charged 10 per cent on the excess. 

In the second place, the Act of 1822 contained specific directions 
with respect to the creation of a superannuation fund; namely that a 
fund should be created, and the account kept in the Bank of England, 
and the monies lodged in the hands of certain commissioners. The 
Act of 1834, on the other hand, contained no express direction for the 
creation of a fund. There was only a general presumption derived 
from the tenor of the act and the preliminary proceedings that the 
deductions were intended to defray the pensions of the contributors. 



CIVIL-SEKVICE KETIKEMENT IN GEEAT BEITAIN. 33 

The only indication which the act contained as to the intention of 
Parhament in making those deductions was found in the words, 
''with a view to reduce prospectively the charge incurred in providing 
for superannuation allowances." Undoubtedly, it was not intended 
to keep the same strict account of the deductions as was done under 
the law of 1822, but though no fund was created, those who stood 
sponsors for the bill of 1834 spoke as if there had been, seeming thus 
to indicate that the intention of the act was to limit the use of the 
deductions to the payment of superannuation allowances. In intro- 
ducing the bill in the House of Commons, Sir James Graham said: ''It 
was recommended by the Finance Committee in 1828, and this clause 
follows out the recommendation, that a deduction should be made in 
the salaries of all men in public offices, in order to provide a fund on 
the principle of insurance. They will pay the premiums themselves, 
and will receive the whole amount of the benefit." And Lord Grey, 
who had charge of the bill in the House of Lords said: "In August, 
1829, a minute was made by the Lords of the Treasury of that day, by 
which it was provided, that in order to avoid the heavy charge which 
had been produced by this practice of superannuation, there should 
be in future a superannuation fund established arising out of a 
deduction of a certain percentage from the salaries of all civil ofiicers 
who received their appointments subsequently to that time." In 
actual practice, however, according to the testimony of Sir Charles E. 
Trevelyan, no separate account was kept of deductions or of the 
mode of appropriating them. In the sense in which a professional 
accountant would use the word "fund," there was no fund. At first, 
the deductions were carried by the different departments to the 
credit of the votes for pensions for their respective departments, and 
after that, on a more improved arrangement of accounts, they were 
collected by the Paymaster-General, and carried to the credit of the 
aggregate annual vote for superannuations and compensations. 
Since all members of the service were pensionable but only part of the 
service — that which had entered subsequently to 1829 — contributed 
to the pensions and since those contributions were not funded, it was 
not known at any time during the more than quarter of a century that 
the Act of 1834 was in force whether the contributions were adequate 
or not. The general impression prevailed that they were more than 
adequate, probably because pensions were bestowed on noncon- 
tributors — those who entered the service before 1829 — as well as on 
contributors. 

In the third place, the Act of 1822 distinctly provided for the refund 
of contributions in case of the resignation or death of the contrib- 
utor before receiving a retiring allowance whereas the Act of 1834 
made no such provision. The result was that a civil servant might 
35885— S. Doc. 290, 61-2 3* 



34 CIVIL-SEIIVICE EETIEEMENT IN GREAT BEITAIN. 

contribute for many years to the pensions of others, and if he hap- 
pened to die before reaching an age or condition which permitted him 
to retire, neither he nor his family could receive any return from 
those contributions. 

While it was apparent from the beginning that the selfishness of 
those who had entered the service before 1829 had resulted in the 
passage of a law more advantageous for themselves but much less 
so for the service generally than the one first proposed, it was not 
apparent, for some time, how bad the law of 1834 really was. The 
class of public servants most vitally interested in the matter — those 
appointed since 1829 — was hardly in existence. They were com- 
paratively few in numbers and officially less than 5 years old at the 
time of the passage of the act. They were not alert to their special 
interests as were the older civil servants, and there was no one in 
Parliament who seemed to perceive their peculiar position or who 
at least undertook to defend them. It was only as time went on and 
those who had been youths in the service became elderly men that the 
body of employees generally began to realize the essential injustice 
of the law and the unfair discriminations sanctioned by it. 

SELECT COMMITTEE OF 1856. 
Grievances Presented by Committee of Civil Servants. 

In 1846 a committee of civil servants drawn from those appointed 
subsequently to the date of the Treasury minute of 1829 was formed 
for the purpose of bringing their grievances to the attention of the 
Government. It continued in existence until 1856, working out 
various data and classifications with reference to the civil service, 
but on the appointment by Parliament of a select committee "to 
consider the existing regulations respecting the grant of superannua- 
tion allowances to persons who have held civil offices in Her Majesty's 
service," the committee of civil servants felt that it was expedient for 
them to dissolve. 

The chairman of the civil servants' committee appeared before the 
Select Committee and testified to the dissatisfaction of the service. 
The committee of civil servants consisted of thirty deputies, repre- 
senting all the principal departments of the Government. Their 
complaint was twofold : That the scale of pensions was not sufficient, 
and that the abatements from the salaries were oppressive. They 
were divided in their request for increase of pensions, one faction 
requesting that the maximum scale of rates for ordinary pensions be 
increased from two-thirds to the full amount of salary, and the other 
faction contenting itself with the request for relaxation in the severity 
of the law relating to the amount of benefits. The two factions were 



CIVIL-SEE VICE KETIREMENT IN GREAT BEITAIN. 35 

agreed in considering the abatement from salaries a growing evil. 
Said Mr. Bromley, the representative of one of the factions : 

The general body of civil servants who have signed that petition, 
of 9,000 persons, agree with me, and agree with the committee with 
which I have been acting, that all those abatements ought to be 
abolished entirely for the purpose for which they are now levied. 
* * * There is this further distinction between us, that they [the 
other faction] wish to place the five per cent abatement in their own 
pockets; and those with whom I act, desire to have that abatement 
continued, if I may so speak, for the purpose of our widows and 
children; in fact, upon the principle of an insurance fund, so that 
every single man as well as every married man shall benefit by the 
abatement. (®) 

Each of these factions presented a petition to the Select Committee 
setting forth their grievances, with some variations of detail, but 
agreeing in the main line of argument. The petition of the first 
faction requesting that the maximum pension be equal to the full 
amount of salary, and that deductions from salary be abolished — in 
other words, that the petitioners be put on exactly the same footing 
as those civil employees appointed prior to the date of the Treasury 
minute of 1829 — was as follows :(^) 

Petition of civil servants of the Crown, whose appointments date 
subsequently to 1829. 

To the honorable the Commons of the United Kingdom of Great 
Britain and Ireland, in Parliament assembled. 

The humble petition of the undersigned civil servants of the Crown, 
whose appointments date subsequently to 1829, showeth. 

That the civil service numbers about 16,000 persons. 

That for the last 40 years a system of strict economy, by reducing 
public salaries and abolishing indirect emoluments, has so greatly 
lessened the incomes of the civil servants, that the average salary of 
the entire body is only £141 [$686.18], while that of two-thirds does 
not exceed £86 [$418.52] per annum. 

That such incomes are very inferior to those of members of the open 
professions, and, considering the social position and educational 
requirements of government servants, are barely sufficient for the 
present maintenance and future provision of their families in that 
degree of respectability which is expected of them as servants of the 
Crown. 

That previous to 1829 this reduced rate of salary was paid without 
any deduction, and the civil servant was assured of a reasonable 
pension when worn out in the public service. 

That in the year 1834, however. Government, in answer to a 
demand for still greater retrenchment, passed the Superannuation 
Act, 4 & 5 Will. 4, c. 24 (having a retrospective effect to 1829), 
which greatly reduced pensions, and levied a tax of 5 per cent on 
salaries over £100 [$486.65], and 2^ per cent on salaries under that 

o- Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 80. 
b Report on Civil Service Superannuation. 1856. Appendix No. 16, pp. 461, 462. 



36 CIVIL-SERVICE EETIEEMENT IN GEEAT BEITAIN. 

amount, with a view to reduce prospectively the charge for super- 
annuation. 

That by this act your petitioners, though compelled to contribute 
towards superannuation, can not claim it as a right, nor retire from 
the service until 65 years of age, unless incapacitated by infirmity 
of body or mind; while the utmost that they can receive is two- 
thirds of their salary should they survive 45 years' service. 

That it has been calculated that this scale of pensions is only half 
the value of that which will be awarded to your petitioners' fellow 
officers who entered prior to 1829, and who, though belonging to the 
same social rank, and performing the same official duties, at present 
receive their salaries in full. Moreover, although all your petitioners 
during their entire official career are thus taxed for superannuation, 
yet, as it is estimated, according to the average duration of life, that 
not more than one in ten can be superannuated, it follows that the 
contributions of the remaining nine-tenths are absolutely lost to 
them and their families. 

That oppressive and disheartening as this act has already proved, 
its effects will be greatly aggravated as the period approaches when 
its enactments, as thej apply to your petitioners, come into general 
operation, because that unwilhngness to retire which is often mani- 
fested at present by old officers who are entitled to the better scale 
of pensions will be much increased, when to do so even after 31 years' 
service will involve, as in the case of your petitioners, a sacrifice of 
one-half of their income. 

That in the absence of strict regulations enforcing retirement, old 
and infirm men entitled to repose must be suffered to remain in office, 
to the detriment of the public service, as well as to the injury of the 
younger members of each department. Thus when the officers who 
entered before 1829 have all retired, and been succeeded by others 
subject to the tax. Government will be receiving the highest amount 
of deductions from your petitioners' salaries, while the latter are 
receiving the least possible benefit from superannuation. 

That the tax is felt to be the more unjust, because, while it is levied 
on the humblest salaried servant of the Crown, an exception is made 
in favor of the following, viz: ministers of State, diplomatic officers, 
judges, and other officials of the superior, county, and sheriffs' courts 
throughout the United Kingdom, and the chief officers of many of 
the civil departments of the State. 

That, though the amount gained by the nation from this tax is at 
present only £60,000 [$291,990] per annum, yet, as it bears exclusively 
on your petitioners, who are subject to all the ordinary taxes of the 
country, it has the effect of nearly doubling direct taxation in their 
case, as compared with all other classes of Her Majesty's subjects. 

That the principle of granting gratuitous pensions has been repeat- 
edly affiirmed by Parliament, and is applied by the British Govern- 
ment to all its servants, with the exception of your petitioners; also 
by the East India Company and the Bank of England; and your 
petitioners humbly submit that it is an obligation sanctioned by 
necessity and sound policy, as well as natural justice; because when 
an officer becomes infirm after spending nearly a lifetime in the 

f)ublic service, at a scale of remuneration purposely reduced to the 
owest rate, and which forbids the possibility of accumulating an 
independence, it is no less necessary, for maintaining the efficiency 



CIVIL-SEEVICE RETIREMENT IF GREAT BRITAIN. 37 

of that service, that he should be withdrawn when incapacitated, 
than it is due to him that that withdrawal should be upon terms 
which he may willingly accept, as involving no serious privation 
during the few remaining years of his life. 

May it therefore please your honorable House — 

1st. To amend the 10th, 11th, and 12th sections of the Act 4 & 5 
Will. 4, c. 24, and to grant to your petitioners a scale of pensions equal 
in value to that at present given to those officers who entered prior 
to 1829, but graduated upon shorter intervals and smaller fractional 
allowances, and with permission to retire after 30 years' service, if 
60 years of age. 

2nd. To repeal the 27th section, levying the percentage tax, and 
thus leave your petitioners subject only to the ordinary taxation of 
the country. 

(9,791 signatures). 

The petition of the second faction requesting that more leniency 
in the matter of benefits be exercised, and especially that the abate- 
ments from salary be applied to the formation of a civil-service 
insurance fund was as follows : (") 

The humble petition of the general committee of civil servants 
of the Crown employed in the several public departments of the 
State, whose appointments bear date subsequently to the 4th day 
of August 1829, showeth. 

That your petitioners have been deputed by the officers and 
clerks in their respective departments to form a general committee, 
which committee has been in existence since the year 1846, for the 
purpose of endeavoring to obtain relief from the abatements made 
from their salaries for superannuation purposes. 

That your petitioners have since that period uniformly labored 
to effect that object, supported as they have been in their view by 
the general sympathy accorded to them. 

That a petition on behalf of the civil servants of the Crown was 

Presented oy your petitioners to your honorable House on the 3rd 
)ecember 1852, and a letter to the late Chancellor of the Exchequer, 
dated 7th December 1853, was laid before your honorable House 
during the last session of Parliament, forwarding the signatures of 
more than 3,000 civil servants expressing their concurrence in the 
prayer of that petition. 

That your petitioners now respectfully beg, with reference to the 
aforesaid petition, to entreat the consideration of your honorable 
House to the following statement of the position in which the civil 
servants of the Crown are placed as respects superannuations under 
the provisions of the 10th, 11th, 12th and 27th sections of the Act 
4&5 Will. 4, c. 24; viz: 

That the pensions granted to them have been reduced in value 
by one-half. 

That this reduction will effect a saving to the country of about 
£300,000 [$1,459,950] a year, or nearly 60 per centum of the entire 
amount of the annual charge for civil superannuations. 

That a permanent saving has also been effected, since that act 
was passed, in the annual charge for civil salaries amounting to up- 
wards of £270,000 [$1,313,955] a year. 

<» Report on Civil Service Superannuation. 1856. Appendix No. 16, pp. 460, 461. 



38 CIVIL-SERVICE EETIEEMENT IN GEEAT BEITAIN. 

That all other classes of public servants receive gratuitous pen- 
sions; but that class represented by your petitioners is subjected 
to a tax of 2| or 5 per centum on their salaries, for the purpose of 
reducing the charge to be incurred for their pensions. 

That the amounts so abated from their salaries have hitherto 
been applied in payment of the pensions of other classes of civil 
servants who are not subjected to the tax, and who are pensioned 
on a superior scale. 

That the abatements have not been formed into a separate fund 
for the individual benefit of the contributors as was intended at the 
time of passing the act. 

That the amount of abatements from salaries in excess of the 
pensions paid has already reached upwards of £750,000 [$3,649,875]; 
and, had those abatements been funded, they would by this date 
have accumulated to a surplus of £1,000,000 sterling [$4,866,650], 
producing, at the rate of only 3 per centum, the annual interest of 
£30,000 [$145,995]. 

That these abatements were imposed for the sole purpose of 
reducing the charge of civil superannuation allowances, which 
object has been, as shown above, already attained. They have, 
moreover, been ascertained to be so excessive and disproportionate, 
that, if continued, the mere interest on the surplus amount accu- 
mulated will, within 60 years from the present time, suffice to defray 
the entire charge of civil pensions in perpetuity. 

That civil servants can now no longer be considered as receiving 
pensions from the State, but are compelled to purchase on excessive 
terms deferred annuities, not only for themselves, but also for all 
their successors. 

That in cases of death in active service the families of the deceased 
derive no benefit whatever from the abatements made for super- 
annuation, but, on the contrary, the tax is even imposed after death 
upon the residue of salary paid to the legal representatives. 

That these abatements made from salaries which average only 
£141 [$686.18] a year deprive the civil servants, as a body, of the 
means of effecting insurances on their lives. There are consequently 
numerous instances of men whose energies are depressed and spirit 
weighed down by the hopelessness of ever securing an adequate 
provision for those whose subsistence depends upon their precarious 
lives, and who are thus precluded from giving their best thoughts 
and exertions to their official duties. 

Your petitioners therefore humbly pray — 

That the limited number of civil servants who are incapacitated 
for active service may be granted, as formerly, during their few 
remaining years, pensions at the expense of the State, in common 
with all other servants of the public. 

That your honorable House will be pleased to relax the severity 
of the 10th, 11th, and 12th sections of the above-mentioned act 
(4 & 5 Will., 4, c. 24), in such manner and to such extent as in the 
wisdom of your honorable House may be considered most conducive 
not only to the well-being of the civil servants, but also to the effi- 
ciency of the public service. 

That the abatements made from the salaries of the civil servants 
of the State, in pursuance of the 27th section of the said act, which 
have been proved to be excessive in amount and to be no longer 
required for the purposes specified therein, may be applied to the 



CIVIL-SERVICE EETIREMENT IN GREAT BRITAIN. 39 

formation of a civil service insurance fund, and be considered as pre- 
miums paid for the insurance of their Hves for the benefit of their 
famines and representatives; upon which simple principle of insur- 
ance there would not be any annuitants either as widows or orphans 
chargeable upon the fund or the public, since the amount insured 
would in each case be paid over at death to the representatives of 
the deceased, whether he were married or single. 

Three General Grounds of Complaint Against Act of 1834, 

From these petitions and from the testimony given by various 
officials and clerks of the service in the course of the hearings it is 
apparent that the complaints against the superannuation scheme 
established by the Treasury minute of 1829 and confirmed by the 
Act of 1834 may be roughly classed under three general heads: (1) 
Dislike of the invidious distinctions made in the act between different 
classes of the public service ; (2) discontent with the provisions of the 
act, particularly the scale of pensions and the absence of a refund in 
case of death or withdrawal from the service before reaching the age 
of superannuation; and, (3) distrust of the actuarial soundness of the 
plan. 

(1) Dislike of distinctions hetween different classes of civil servants. 

The body of civil servants generally felt aggrieved that all other 
classes of public servants received gratuitous pensions while on them, 
the humblest-salaried servants of the Crown, a tax which they could 
ill afford was levied to meet the expenses of their superannuation. 
They saw, on the one hand, that ministers of State, diplomatic officers, 
judges, and other officials of the superior, county, and sheriffs' courts 
throughout the United Kingdom, and the chief officers of many of 
the civil departments of the State were retired on liberal pensions 
often after only a few years' service ; and they saw, on the other hand, 
that their fellow-officers who had entered the service prior to 1829, 
individuals of the same social rank, performing the same official duties, 
received their full salaries without deduction and were retired on a 
scale of pensions about twice the value of those awarded themselves. 

The testimony of Sir Charles E. Trevelyan brought out the fact 
that particularly large pensions were paid to certain great officers 
of State appointed to their positions by reason of political favor and 
to members of the judicial establishments. Sir Charles E. Trevelyan, 
who was Assistant Secretary to the Treasury and deeply interested in 
the subject of civil-service reform, gave the committee much valuable 
information. Returns prepared by him for the Chancellor of the Ex- 
chequer showed that the total annual salaries of the civil establishments 
of the United Kingdom were £5,599,409 ($27,249,523.90), and the total 
annual compensations and pensions, £1,122,844 ($5,464,320.33). C*^) 
The pensions, therefore, were to salaries in the proportion of nearly 

o Report on Civil Service Superannuation. 1856. Appendix No. 2, p. 357. 



40 CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 

one to five, or 20 per cent, but this statement is hardly fair to the 
permanent civil service, for it covered two great divisions, one of the 
judicial establishments of the three kingdoms and the other of all other 
civil establishments. The total amount of pensions and compensa- 
tions of all the judicial establishments of England, Ireland, and 
Scotland was nearly 34 per cent (") of the total amount of salaries, 
whereas the total amount of compensations and superannuation 
allowances of what was commonly called the " civil service," including 
the departments which paid contributions, was only 18 per cent of 
the total amount of salaries. It should be noted also that this 18 
per cent included the pensions paid to great officers of State, especially 
provided under the first clauses of the Act of 1834 with pensions 
much more generous than any allowed the members of the general 
body of civil servants. These pensions included £1,000 ($4,866.50) 
each after ten years' service to Under Secretaries of State, to Clerk of 
the Ordnance, Second Secretary of Admiralty, and Secretaries of the 
India Board; those of £1,200 ($5,839.80) after five years' service to 
JointSecretariesoftheTreasury, First Secretary of Admiralty, and Vice- 
President of the Board of Trade; those of £1,400 ($6,813.10) after five 
years' service to the Chief Secretary of Ireland and the Secretary at 
War; and those of £2,000 ($9,733) after only two years' service to 
the First Lord of the Treasury, Secretaries of State, Chancellor of the 
Exchequer, First Lord of the Admiralty, President of the India Board, 
and President of the Board of Trade, 

(a) PENSIONS PAID CHIEF OFFICERS OF STATE AND JUDICIARY COM- 
PARED WITH THOSE PAID OTHER CIVIL EMPLOYEES. 

All the objections which applied to the ordinary pension hst 
apphed in an aggravated degree to the pensions of the great legal 
establishments, the arrangements connected with which were, in 1856, 
in the same crude and elementary state in which those relating to the 
other civil establishments were at the beginning of the century. For 
instance, there was no check upon first appointments and there was 
no limitation as to the age of entrance into the service, a matter which 
has a very important bearing upon the pension list. Officers of the 
legal establishments paid no deductions, or if they paid them, it was 
only in the case of new appointments made subsequently to the date 
of the special acts by which the establishments were regulated. 
When an ordinary civil establishment was placed by the Treasury on 
the schedule of the superannuation act, the persons belonging to it 
were made to pay up the arrears of deductions from the date of their 
appointment, supposing they were appointed subsequently to the 
4th of August, 1829; whereas under the special acts of Parliament, 
by which a few of the judicial estabfishments were placed under the 

« This should apparently be 31 per cent. See note to statement on p. 42. 



CrVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 



41 



Superannuation act, the deductions always commenced not from the 
date of the commencement of the service of the officer, but from the 
date of the act. 

The return prepared by Sir Charles E, Trevelyan and submitted to 
the Select Committee on March 4, 1856, showing the total annual 
salaries, compensations, and pensions of the civil establishments of 
the United Kingdom was as follows: (°-) 

TOTAL ANNUAL SALARIES, COMPENSATIONS, AND PENSIONS OF THE 
CIVIL ESTABLISHMENTS OF THE UNITED KINGDOM. 

Total annual salaries of tlie civil establishments of the 

United Kingdom £5, 599, 409 [$27, 249, 524] 

Total annual compensations and pensions 1, 122, 844 [5, 464, 320] 

Being in the proportion of nearly 1 to 5, or 20 per cent. 
JUDICIAL ESTABLISHMENTS. 



Court. 



Salaries. 



Compen- 
sations 

and 
pensions. 



England: 

Court of chancery 

Court of Queen's bench 

Court of common pleas 

Court of exchequer 

Court of requests 

County courts 

Court of admiralty and others. 
Marshalsea and Palace court. . 

Abolished courts of record 

Bankruptcy court 

Insolvent court 



Total, England. 



Ireland: 

Court of chancery , 

Court of Queen's bench 

Court of common pleas 

Court of exchequer 

Lord treasurer's remembrancer and others. 

Registrar of judgments 

Clerks of writs 

Taxing officers in common law business 

Prerogative court 

Court of appeals 

Bankrupt court 

Insolvent court 

Admiralty court 

Assistant barristers 



Total, Ireland. 



Scotland: 

Court of session 

Sheriffs of counties . . 
Sheriffs' substitutes . 

Total, Scotland . . . 



S834,614 
217,406 
177,944 
188, 781 



499,999 
34, 187 



290,817 
40,952 



2,284,700 



333,316 
132,719 

104,742 
112,134 



5,596 
9,490 
8,760 
14, 599 
3,582 
19,709 
20,887 
2,433 
157,811 



925,778 



284, 564 
100, 128 
164,415 



549, 107 



$451,991 
76,039 
61,858 
65,206 
49,867 
15, 573 

6,682 
18, 157 

2,929 
119,059 

1,727 



142, 447 
23,593 
15,631 

28,255 
5,786 



2,920 



5,986 
'4; 633 



229,251 



72,331 



72,331 



SUMMARY OF JUDICIAL ESTABLISHMENTS. 



England... 

Ireland 

Scotland... 

Total 



$2,284,700 
925, 778 
549, 107 



3,759,585 



6 229,222 
72, 331 



1,170,641 



oReport on Civil Service Superannuation. 1856. Appendix No. 2, p. 357. 

6 This amount does not agree with the total for Ireland shown above, but is the equivalent of the amount 
(£47,102) shown in the original report. No explanation is given for the discrepancy. 



42 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 



The total amount of compensations and pensions of all the judicial establishments 
of the United Kingdom is therefore nearly 34 per cent(«) on the total amount of 
ealaries. 

If the four superior courts of England and Ireland are taken separately, the per- 
centage is above 41 per cent, viz : 

ENGLAND. 



Salaries. 



Compen- 
sations. 



Court of chancery 

Court of Queen 's bench 
Court of common pleas. 
Court of exchequer 



$834,614 
217, 406 
177,944 
188, 781 



$451,991 
76,039 
61,858 
65,206 



1,418,745 



655, 094 



54 per cent of the salaries. 
35 per cent of the salaries. 
35 per cent of the salaries. 
34 per cent of the salaries. 

46 per cent of the salaries. 



IRELAND. 



Court of chancery 

Court of Queen's bench 
Court of common pleas . 
Court of exchequer 



$333,316 
132,719 
104,742 
112,134 



682,911 



$142,447 
23,593 
15,631 
28,255 



209,926 



42 per cent of the salaries. 
18 per cent of the salaries. 
15 per cent of the salaries. 
25 per cent of the salaries. 

30 per cent of the salaries. 



OTHER CIVIL ESTABLISHMENTS. 



Names of ofRces. 



House of Lords 

House of Commons 

Great ofHcers of State: 

Class I 

Class II 

Class III 

Class IV 

Diplomatic establishments , 

Treasury 

Privy council olTice 

Board of trade and registrar of merchant seamen . 

Secretary of State, 1 lome l>epartment 

Secretary of State, Foreign Department 

Secretary of State, Colonial Department 

Secretary of State, for War 

Commander in chief's office 

A dj utant-general "s o Iflce 

Q uartermaster-genoral's offlce 

War ottice 

Judge-advocate-general's offlce 

Chelsea hospital 

Koyal military college 

Koyal Miilitary asylum 

.\ rniy medical ilepartment 

Ordnanc* olTices 

Artificers' wages for 1853-54 

Commissariat oUice 

Admiralty cilices 

Artificers' wages for 1853-54 

Audit offlce 

Koyal mint 

I'ay master-general's offlce 

K xchequor offlce 

Customs offlcers and coast guard 

Inland revenue 

I'ost-otllce 

Stationery offlce 

State paper offlce 

Record offlce 



Salaries. 



$75,431 
236,093 

128,002 
19,466 
38,932 
60,831 

681,310 

153,777 
57,361 

190,066 
68,048 

114,723 
73,781 
41,059 
30,172 
20,026 
18,356 

187,871 
8,735 
14,570 
28,878 
9,339 
11,534 
,044,541 

763,165 

23,354 

,222,728 

,618,515 

210,763 
53,098 

103,588 
35,998 

,155,239 

,798,157 

,910,739 

48,568 

7,276 

36,601 



Compensation and superan- 
nuation. 



Compen- 
sation. 



$2,920 



21,631 



140 



8,298 



1,946 
2,925 



60,627 

78 

14,950 

4,764 

808 

3,528 

45,809 



15,923 
105,949 



18,862 
28,328 
80,915 



270,149 

213,688 

18,945 



Superan- 
nuation. 



$28,985 



72,024 

125,157 
37,706 
2,068 
2,506 
18,507 
20,488 
1,630 



3,913 
5,708 



29,773 

1,294 

4,638 

5,149 

978 

1,752 

188,713 

33,048 

17,374 

267,964 

312,157 

44,091 

10,760 

4,833 

3,893 

890,701 

856,738 

140,306 

4,725 

43S 

2,959 



Total. 



$31,905 



72,024 

125,157 

59,337 

2,068 

2,652 

20,405 

20,488 

9,928 



5,859 
8,633 



90,400 

1,372 

19,588 

9.913 

1,786 

5,280 

234,522 

33,048 

33,297 

373,913 

312,157 

62,953 

39,088 

85,748 

3,893 

1,160,860 

1,070,426 

159,251 

4,725 

438 

3,494 



o The percentage here given is according to the original report. According to the 
figures shown in preceding table it should apparently be 31 per cent. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 
OTHER CIVIL ESTABLISHMENTS-Contlnued. 



43 



Names of ofTiees. 



Registrar-general's office 

Lunacy commission 

Metropolitan police offices 

Queen's prison 

National debt office 

Public works loan commission. 

Office of woods, etc 

Office of worlcs 

Colonial land emigration 

Consuls restricted from trade. . . 

India board 

Queen's remembrancer 



Board of fisheries 

General register office 

Queen's and lord treasurer's remembrancer. 

IRELAND. 



Chief secretary's office 

Board of worlcs 

Paymaster of civil services 

General register olhce 

Kilmalnham liospital, etc 

Hibernian military school 

Dublin metropolitan police offices. 

Total 



Salaries. 



$62,588 
47,692 

166,936 
14,726 
62,204 
11,996 
69,236 
81,246 
35,637 

223,372 
77,231 
27,238 



24,060 

4,818 

12,779 



63,182 
92,809 
31,944 
7,932 
11,675 
12,517 
46,470 



23,489,939 



Compensation and superan- 
auation. 



Compen- 
sation. 



$1,202 



1,626 
"46,'4i2' 



23,067 
4,789 



146 
331 



1,001,195 



Superan- 
nuation. 



S253 



16,059 

5,475 

10,502 

3,650 

5,129 

701 

08 

45,842 

22,274 

827 



10,473 



2,273 



6,054 

6,701 

5,319 

253 

837 

628 

8,161 



3,292,456 



Total. 



$253 



16,059 

5,475 

11,704 

3,650 

6,755 

701 

68 

92,254 

22,274 

827 



10,473 
"2,'273 



29,121 

11,490 

5,319 

253 

983 

959 

8,161 



4,293,650 



Note. — The proportion which the total amount of the] 
compensation allowances of this class bears to the total [1-23^(1 part, or 4} percent, 
amount of salaries is about J 

Note. — The proportion which the total amount of the] 
compensation allowances of this class bears to the superan- >l-7th part, or 14 per cent, 
nuation allowances is about J 

Note.— The proportion which the total amount of thel 
compensation allowances of this class bears to the compen->l-5^th part, or 18 per cent, 
sation and superannuation allowances is about J 

Sir Charles Trevelyan considered the principle of abatements thor- 
oughly objectionable, but he took the stand that if it were to be con- 
tinued it should be extended to all alike, both to the higli political 
officers of the State and to the judges, and from the judges down to 
the lowest paid messenger. He defended his position with great 
ability, showing how the pensions enjoyed by the diplomatic and 
political servants were not only paid for by the State, but that the 
rates of pension were much higher in proportion than those of ordi- 
nary civil employees, that they were granted after a much sliorter 
period of service, and were altogether more easily and frequently 
obtained. As his opinion seems to have reflected to a great degree 
the sentiment of the civil service itself, some of his remarks should 
be quoted. lie said: 

Equality belongs to the very essence of justice, but there are some 
independent, powerful classes, especially the large class of diploma- 
tists and lawyers, not merely the judges, but the much larger class of 



44 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

adminis'-.rative officers of tfie courts in England, Ireland and Scotland, 
and the county court judges, and treasurers and clerks, and the as- 
sistant barristers in Ireland, and the sheriffs depute in Scotland, all 
together forming a very large class indeed, who are almost entirely 
exempted from the deductions. _ The Treasury, in its various deaUngs 
with the subject of superannuation, has from time to time endeavored 
to bring the several sections of this great class under contribution, but 
we have almost always been foiled ; and even when we have succeeded 
in some degree, they have always prescribed conditions to us much 
more favorable to themselves than those to which the clerks are sub- 
jected; then, as the powerful few, so are the powerful many. There 
are 24,000 dockyard men, workmen employed in the arsenals, and 
post-office sorters and letter carriers and so forth, all of whom have 
at this moment a contingent right to a pension, without paying any 
deduction whatever; and the inequality there is more remarkable, 
because the exemption from deduction is extended to £200 [$973.30] 
in the dockyards. I presume it was not considered advisable to touch 
any of the large class of workmen, so that although the clerks and 
messengers pay on whatever salaries they may receive, however small 
they may be, a large class of persons in the dockyards are exempted 
up to £200 [$973.30]. («) 

Although questioned very closely by members of the Select Com- 
mittee, Sir Charles Trevelyan would not admit that difference in the 
terms of service of different classes of public officers, permanence in 
office, or payment by fees, gave just ground for any difference of 
treatment with regard to deductions. He said: 

My argument is, that all should be dealt with alike. If jt is proper 
that one class of public servants should contribute to their own pen- 
sions, it is proper that all should contribute toward their pensions. 
If it is proper that large sections of the civil service should be ex- 
empted from deductions, and should have their pensions provided for 
them by the State, it is equally proper that all other sections should 
be so exempted, * * * j would have either a system of universal 
superannuation fund, or a system of universal free pension, granted 
by the State; and of the two I very much prefer the latter. C") 

(h) PENSIONS PAID EMPLOYEES WHOSE APPOINTMENTS ANTEDATED 
1829 COMPARED WITH THOSE PAID OTHER CIVIL EMPLOYEES. 

If the opposition of the members of the civil service forced to make 
contributions from their salaries to a hypothetical fund on which 
the chances were seven to one they would never draw was stimulated 
by the exemption of the great officers of State and the lowest work- 
man of the Government from such requirement, it was fanned to a 
flame by the exemption of certain fellow-officers thus favored simply 
because their appointments antedated August 4, 1829. The civil 
servants appointed subsequently to 1829 saw that they suffered in 
comparison a double disadvantage; they had a lower scale of pen- 

a Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 23. 
b Idem, p. 29. 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 45 

sions, and their salaries were subject to considerable deduction. The 
law was very liberally interpreted for the benefit of the early comer. 
Even if he had held a very inferior situation previous to 1829, if he 
had been an extra clerk, for instance, or had held only a temporary 
situation, he was considered to have entered the service previous to 
1829, and was therefore exempted from deductions. However small 
his salary before 1829 and however large his salary in 1856, at the 
time of the investigation, he was exempted from deductions upon the 
whole of his salary. About one-third of the service was at that 
time exempt from paying deductions. As the other two-thirds were 
working in the same offices, at the same tasks, often more efficiently, 
it can easily be understood that there seemed to be some ground for 
complaint. 

(2) Dislike of pension scale and forfeiture provisions. 

In the second place, the civil servants were discontented with the 
provisions of the law. Not only did they think the scale of pensions 
too low (apart from the matter of deductions), but they felt it unjust 
that they should be required to pay a tax during the whole of their 
official lives and receive noticing in return except in case of retire- 
ment under the rigid rules of the service. The complete forfeiture 
of their contributions in case of voluntary withdrawal from the serv- 
ice before reaching a condition of superannuation or infirmity, in 
case of dismissal from office, or in case of death while in office, was 
resented as a confiscation of property. This lack of provision for 
refund of contributions, and not so much the fact that deductions 
were made from salaries, was the deep-seated reason for the antago- 
nism of the civil servants to the system of abatements. There was a 
general feeling that the Government should pension outright the 
whole body of permanent employees, as was not unnatural in 
a country where political pensions were awarded frequently and on 
a most liberal scale, but it is equally apparent that had the law of 
1834 established a contributory plan which was equitable as between 
different classes of employees and which made provision for refund 
of contributions in each and every case the chief complaints to which 
the Select Committee of 1856 listened would never have been made. 

The opinion of a distinguished civil employee. Sir John Herschel, 
no longer in the public service, in regard to the injustice of con- 
fiscating contributions, was quoted by Mr. Bromley: 

Whatever is paid to any person employed in remuneration of service 
should be absolutely his property, at least so far as not to be revocable 
at the pleasure of the employer, or defeatable by the accident of death. 

The payment, no doubt, may be made partly in money, and partly 
in the form of a right; but the right should be a vested one, and not 
liable to annulment. The only mode consistent with justice of 
dealing with such portion of a man's salary as may be withheld from 



46 CIVIL-SEKVICE RETIBEMENT IN GREAT BRITAIN, 

him is to regard it as held in trust and managed for his absolute 
benefit, to be either handed over to him, with accumulations, at the 
termination of his service, or paid over to his executors, etc., in case 
of death, or invested for him (if possible on more advantageous 
terms than he could individually obtain) in such way as he shall 
himself approve, to meet his case as a bachelor, husband, or father. 
Whatever is kept back as constituting a lien upon him for the con- 
tinuance of his services, or as affording a hold upon him for good 
conduct, ought rather to be called caution money than salary. So 
far as its accumulation is an advantage, it is yet one contingent con- 
ditional and liable to forfeiture. It is not his, and may never become 
his. If he die in the service, it is lost; he has been mulcted of it 
without fault on his part; and if it be forfeited by misconduct he has 
in effect been fined by anticipation. 

To men from whose motives fortune and fame are excluded; who 
labor in obscurity, and see their equals passing them in the career 
of life; the sole redeeming feature of whose position is its certainty, 
it does seem most incongruous to introduce an element of this nature. 

An objector to the present system might say, "If you assert that a 
man has a salary of £100 [$486.65] per annum, you are bound to give 
it him in some form or other of hard cash, and not of expectations, 
which may be disappointed. If with his consent, by means of a 
forced bargain, or in his ignorance of its nature at the moment of his 
engagement, you keep back a part of it,- you are bound to pay it, not 
to some other party in whom he has no interest, but to himself or his 
nominees, and that whether his conduct has been good or bad (pun- 
ishing bad conduct by dismissal, and criminal by the penal law). 
You incur this obligation, not with him, but with mankind, that 
words should correspond to things and mean realities. You assume pro 
tanto the position of a savings bank, and are bound to account to the 
uttermost farthing, not to the mass of your contributors, but to each 
individual. An act of Parliament may legalize, but can not justify, 
a contrary view of the matter. (") 

It will be remembered that in the petition to the committee 
signed by 9,791 members of the civil service, out of an aggregate 
number of about 16,000 persons, the following statement was made: 

Although all your petitioners during their entire official career are 
thus taxed for superannuation, yet, as it is estimated, according to 
the average duration of life, that not more than one in ten can be 
superannuated, it follows that the contributions of the remaining 
nine-tenths are absolutely lost to them and their families. (^) 

(a) FORFEITURE PROVISION OBJECTIONABLE AS A FORM OF TONTINE. 

The calculation of Dr. William Farr, head of the Statistical Office 
of the Department of the Registrar-General, was that about one in 
eight of the whole number of persons in the civil service whose 
salaries are liable to deductions became superannuated, while Felix 
John Hamel, esq., solicitor to the Board of Customs, told the Select 

a Report on Civil Service Superannuation. 1856. Appendix No. 9, p. 416. 
b Idem, Appendix No. 16, p. 462. 



CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 47 

Committee that, according to his calculations, not more than one in 
seven of the contributors in the Customs reached the age of super- 
annuation. The others died or left the service before reaching the age 
at which they could claim a superannuation allowance, so that the 
statement of the civil servants in their petition that "according to 
the average duration of life" not more than one in ten can be super- 
annuated was apparently an exaggeration of the fact, being based on 
incomplete reasoning, since the average rate of resignations and 
dismissals is a factor in such calculations as much as "the average 
duration of life." The truth, however, was bad enough and showed 
that the civil employees were justified in their lack of enthusiasm 
for a system which compelled them to contribute to an object by 
which not more than one-seventh or one-eighth of their number 
could possibly profit. Mr. Hamel's calculation showed the volun- 
tary resignations before the age of 61 at 14 per cent of the whole 
number of clerks, the dismissals at 20 per cent, and the deaths at 50 
per cent, making a total of 84 per cent of the civil servants who 
never reached superannuation. 

"Under this arrangement for granting allowances out of deduc- 
tions," declared Doctor Farr to the Select Committee, "you necessarily 
have to take the deductions from men who never derive any benefit 
whatever from the fund. This is, I conceive, an insuperable objection 
to the system. The families of the men who die are harshly dealt 
with; you take from the widow and fatherless children the deductions 
of the men who die, to enable you to pension those who live. Now, 
it is impossible to convince the widows or the orphan children of 
the officers who die in the service that it is just to deprive them of 
the advantage derived from the contribution of the parent, to enable 
you to pay the superannuation allowances of those officers who are 
so fortunate as to live."(^) And a week later he told the Select 
Committee the same thing with a different choice of words: "Sup- 
posing that 1,000 men commence paying those deductions, and you 
receive those deductions, and invest them at interest, and let them 
go on accumulating for forty years, at the end of that time you will 
have to divide the money among the survivors only of the 1,000. 
This system of the Government is a tontine, and the objections 
against tontines hold against this scheme of deferred annuities." C") 

Doctor Farr was one of the most eminent actuaries of his day and 
his testimony to the committee in the course of this investigation 
was particularly helpful in making clear the unsoundness of the 
superannuation scheme established under the Act of 1834. The 
civil employees did not need to be actuaries, however, to perceive 
the nature of the system of which they were victims. 

oReport on Civil Service Superannuation. 1856. Minutes of evidence, p. 176. 
6 Idem, p. 243. 



48 CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 

Asked what was the objection of the civil service to the system of 
abatements, Mr. Bromley, chairman of the committee of civil serv- 
ants, said: 

The main objection which we entertain is this: that the scale of 
pubhc salaries is fixed as a just payment for the work to be done, 
and that the abatement made from those salaries to secure a deferred 
annuity is an object for which we consider the State itself ought to 
provide; that is the broad issue. We consider that the State itself 
ought to provide for its worn-out servants. The present law of 1834 
directs that the servants shall provide for themselves; but the abate- 
ment is not now levied upon a mutual principle; it is upon the 
principle of a lottery, or rather upon the principle of a tontine, that 
a great many gentlemen shall put in a certain sum, and the longest 
fiver shall derive the benefit. Upon these grounds we object to the 
abatements. (") 

(&) FORFEITURE PROVISION ESPECIALLY UNJUST IN CASES OF CLERKS 

DYING IN HARNESS. 

The hearings abound in citations of cases of civil servants who 
contributed for years to the supposed '^ Superannuation Fund" and 
dying left their families in destitute circumstances. Letters from 
individual clerks bring out this grievance strongly. 

The widow of John Kendall, who held the position of consul in the 
Cape de Verde Islands from 1839 to 1854, begged the committee to 
grant her indemnification for the pecuniary loss she had sustained by 
the death of her husband, on the ground that during the sixteen years 
of his service he had contributed to the ''Superannuation Fund" with 
the impression that he was at the same time securing to his wife and 
family benefits to be derived in the future, and that the deduction 
from his salary precluded him devoting any other proportion of his 
income to the insurance of his life. 

D. H. Harris, a landing waiter in the Customs service, wrote, on 
March 24, 1856, to F. J. Hamel, solicitor to the Board of Customs, a 
letter setting forth the woes of his class : 

My nominal salary is £200 [$973.30] per annum; I only receive 
£167 6s ($814.16). The remainder is swallowed up in income tax, 
superannuation tax, and premium for insurance of £300 in the customs 
benevolent fund. These deductions amount to about 17 per cent, 
or one-sixth of my actual receipts. 

As the relative condition of the officers in the civil service has 
formed part of the inquiry before the committee of the House of 
Commons, permit me to draw your attention to the fact that, with 
this same salary of £200 [$973.30] per annum, either in the service 
of the Bank of England, the East India Company, or the London 
Dock Company, I should be at least 12 per cent better off than as a 

« Report on Civil Service Superannuation. 1856, Minutes of evidence, p. 80. 



CIVIL-SEEVICE EETIEEMENT IN GEE AT BEITAIN. 49 

civil servant of the Crown, because the former pay the salaries of 
their servants in full, and give retiring allowances without deductions ; 
the latter deduct not only income tax, but abatements for superan- 
nuation also. The hours of work and attendance are similar. I 
find that, as a body, the condition of the officers of the Customs is a 
depressed one; they are for the most part ill paid, and, in the event 
of early or sudden death, their families are often left in a most 
wretched state of destitution. * * * 

After enumerating a number of cases that had come under his 
observation, he continued: 

Under the superannuation law a man may pay twenty, thirty, or 
forty years, and never receive a shilling. The longer he serves the 
less chance he has of receiving any benefit, because the older he gets the 
less the probability of his surviving to receive it; and if he dies with 
part of his salary due, his widow is actually mulcted five per cent of 
the balance due, though it is then utterly impossible that any benefit 
can accrue from it. Another feature presents itself: when the 
poor day-pay officer is sick his day pay is stopped; but from his 
small salary, when the quarter comes round, is deducted the super- 
annuation tax of 2^ per cent upon the sums which he did not receive. 
If he should die, his widow would be forced to contribute to the super- 
annuation tax upon the unreceived half-crowns, the lack of which, 
perhaps, induced exhaustion to her husband, and want of bread to 
her children. When the officer entering the service first hears of 
this deduction, he consoles himself with the idea that it is for some 
certain though perhaps far-off benefit which will accrue to him; he 
next finds that it is a tax to reduce the charge upon the country for his 
probable superannuation; next, that it is not only more than enough 
to reduce that charge, but sufficient to confer a large benefit on 
noncontributors, and that he who must pay may possibly never get 
Nft shilling. (") 

W. B. Hambly, a clerk in the Royal Engineer Department, wrote 
the comnuttee on the civil service superannuation bill partly as 
follows : 

Whilst this momentous question is under consideration by your 
honorable committee, and before its fate is sealed by act of Parlia- 
ment, something is due to the widow and orphan of the civil servant; 
for it seems hard indeed that his last dying thoughts were to be em- 
bittered by the terrible idea that his wife and children, whom, whilst 
the Almighty had been pleased to grant him life and health, he had 
toiled to provide for, cherish and comfort, should at his death be 
thrown penniless on the world, and the fund to which he had all his 
life subscribed be shut against them. It seems but j ust, that whatever 
allowance this fund entitled him to, should, at his death, be handed 
down as a support (if bona fide required) to his wife and children; 
for I may here remark, that it is not in the power of any Government 

o Report on Civil Service Superannuation. 1856. Appendix No. 15, p. 453. 
35885— S. Doc, 290, 61-2 i* 



50 CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 

clerk (except those in the high offices) to provide out of their pay 
anything for the future support of either wife or children. The pay 
is altogether too inadequate for such a purpose, and the Government 
deductions are so heavy, that it is with difficulty they can live on the 
pay received. Therefore, out of the civil servants' superannuation 
fund, it is the more incumbent on Government to provide for their 
wives and children; and that in the event of the husband dying in 
office, that they should receive the full allowance the length of service 
would have entitled the deceased to; or when death occurred, after 
being superannuated, that the same allowance should be continued 
to the wife as the husband had been enjoying, and, as he had paid 
for it, his family might fairly be entitled to it. (") 

The fact that the committee of civil servants was seeking chiefly 
not an abolition of the compulsory deductions but a limitation of the 
deductions to 2^ per cent for the creation of an insurance fund is 
sufficient proof that among a large number of the civil employees 
there was no serious objection to the deductions, as such, provided 
they were used for the benefit of the families of those whose salaries 
were thus taxed. This point is brought out even more clearly by 
William Willis, esq., the secretary of the committee of civil servants. 
Asked by the chairman of the parliamentary committee to state the 
objections entertained by the members of the association which he 
represented to the present system of superannuation, he said: 

The objections are numerous. The first is, that the abatements 
operate with very great severity upon a class whose incomes are 
small; coupled with the income tax, they amount to a deduction of 
11 per cent. The origin of the movement arose in our finding such 
great distress to exist amongst the families of the clerks. I was my- 
self aware of it to some extent, and have had applications before me 
of a most painful nature from the widows of officers petitioning for 
the collection of even a few shillings; in one case the body of an 
officer could not be buried for want of means, nor until subscriptions 
had been collected in the office to which he had belonged. Fmding 
that this distress was very general, and as our inquiries also led us 
to believe that insurance was effected in but a very small minority of 
cases amongst the civil servants, we were induced to inquire whether 
means could not be adopted of providing some insurance fund. 

"If I understand your statement correctly, the first object that 
your society had in view was the establishment of an insurance fund 
for the widows and children of deceased public servants?" asked the 
chairman. "It was." 

"How did you propose to accomplish that object? 

"We proposed to establish an insurance fund by means of con- 
tributions from the service; but we found that that was wholly out 
of the question, ^Decause these abatements precluded the civil serv- 
ants from subscribing to any such association. It was these abate- 
ments which debarred them from the power of making insurances." (^) 

a Report on Civil Service Superannuation. 1856. Appendix No. 15, p.455. 
b Idem. Minutes of evidence, pp. 144, 145, 



CIVIL-SEE VICE KETIKEMENT IN GREAT BEITAIN. 51 

On this point Doctor Farr was also equally clear. "One objection 
to the deduction in its present form," he told the Select Committee, "is 
that it prevents so large a number of the public servants from insuring 
their lives ; but if you remit the deduction for the purpose of super- 
annuation they would be enabled to appropriate at least a part of 
their salaries for the insurance of their lives." («) 

(c) FORFEITABLE DEDUCTIONS WITH INADEQUATE SALARIES A BAR TO 
• LIFE INSURANCE. 

Doctor Farr had been consulted a number of years before this by 
the committee of civil servants formed for investigating the subject of 
superannuations. They had claimed that cases of distress occurred 
very frequently in the service in consequence of the fact that many of 
the civil employees were unable to insure their lives, owing to the insuf- 
ficiency of their salaries and the deductions made from those sala- 
ries. Doctor Farr had requested them to procure information from 
the public departments. They did so, and he embodied the infor- 
mation in a paper read before the Statistical Society of London on 
December 18, 1848. This showed that 16,353 officers, either paying 
contributions or in offices liable to pay contributions to the superan- 
nuation fund, had, on an average, salaries of £141 ($686.18) a year; 
that is the nominal salary, which would be further reduced by the 
deduction to £135 ($656.98) a year. Two-thirds of those salaries did 
not exceed £100 ($486.65) a year; they were on an average £86 
($418.52) a year. Information of another kind showed that of the 
16,353 officers, about 11,023 had wives living, as well as 21,952 
children under 15 years of age, making in the aggregate 49,328 per- 
sons more or less dependent on the salaries. Each married civil 
employee in the station of life in which he is would keep one or more 
servants; that would imply that there was about £34 ($165.46) a 
head on the total number of persons dependent on the civil servants 
contributing to the fund. Doctor Farr stated to the Select Com- 
mittee that that appeared to him to substantiate the statement 
of the civil servants that their salaries scarcely permitted them to 
insure their lives. C*) 

In connection with the oft-repeated statement that the salary of 
the average civil service clerk was not sufficient to bear deductions 
the statement of the annual expenditure of a married clerk, compiled 
by J. T. Hammack, of the Statistical Department of the Registrar- 
General's Office, "from information that can be relied upon," is inter- 

o Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 188. 
b Idem, pp. 159, 160. 



52 CIVIL-SEKVICE KETIKEMENT IN GREAT BEITAIN. 

esting. This statement showed "the annual expense, regulated with 
the strictest regard to economy, of a family consisting of five persons, 
viz, a civil service clerk, his wife, two children, and a servant." The 
total annual expenditure was shown to be £183 7s. 5d. ($892,37). 
The salary of a civil service clerk appointed after August, 1829, 
amounting to £200 ($973.30), was subject to a superannuation abate- 
ment of 1 shilling in the pound (5 per cent) or £10 ($48.67), and to an 
income tax of Is. 4d. in the pound (6§ per cent) or £12 13s. 4d. 
($61.64) («), or a total deduction of £22 13s. 4d. ($110.31). This left 
him a net amount of salary of £177 6s. 8d. ($862.99), so that a nominal 
salary of £200 ($973.30) per annum, unsupported by private resources, 
would be insufficient to enable the clerk to meet the above expendi- 
ture to the extent of £6 9d. ($29.38). This estimate omitted all 
allowance for the education of children, sittings in a place of worship, 
Ufe assurance, excursions into the country during vacation, and 
indeed all other recreation attended with expense, made no provision 
for lengthened illness or death in the family of the clerk; and in the 
event of the death of the clerk liimself there was no provision what- 
ever for his wife and children or other dependent relatives. It was 
argued that the sum deducted for superannuation, £10 ($48.67) 
would, if remitted, enable the clerk to effect a small insurance upon 
his life. Fuller details of the statement of expenses are as follows : (^) 

ANNUAL EXPENDITURE OF A MARRIED CLERK. 

[Statement showing the annual expense, regulated with the strictest regard to economy, of a family con- 
sisting of five persons, viz, a civil-service clerk, his wife, two children, and a servant.] 

ITEMS OF EXPENDITURE. 

House rent and taxes : 

Rent of a six-roomed house (in the suburbs of London) $121. 66 

House tax (9d. in the pound (3f per cent) on the rent paid) 4. 56 

Poor rate (say, 3s. in the pound (15 per cent) on a rating of £22 

($107.06) 16. 06 

Lighting, paving, and highway rates (say) 6. 09 

Water rate 5. 11 

$153.48 

Provisions and other household necessaries (per week, for five per- 
sons) : 

Bread, 32 lbs., at 2id. (4.6 cents) per lb., 6s. ($1.46); flour, 1 

quartern, lOd. (20 cents) 1. 66 

Meat, 14 lbs., at 8d. (16 cents) per lb 2. 27 

Tea, ^ lb., 2s. (49 cents); coffee, | lb.. Is. (24 cents) 73 

Sugar, 3 lbs., at 5d. (10 cents) 30 

Butter, 2 lbs., 2s. 4d. (57 cents); eggs, bacon, cheese. Is. 4d. 

(32 cents) 89 

oThe amount here given is according to the original report. Calculated on the 
basis shown it should apparently be £13 68. 8d. ($64.89). 

& Report on Civil Service Superannuation. 1856. Appendix No. 14, p. 451. 



CIVIL-SEEVICE EETIREMENT IN GREAT BRITAIN. 53 

Provisions and other household necessaries (per week, for five per- 
sons) — Continued. 

Vegetables and fruit, 3d. (6 cents) per day |0. 43 

Beer, 3 pints per day, 21 per week, at 2d . (4 cents) .85 

Milk, 1 pint per day, at 2d. (4 cents) .29 

Candles -37 

Firewood, and materials for cleaning house .24 

Soap, mustard, vinegar, pepper, rice, &c .16 

Washing (done at home), 6d. (12 cents) per head .61 

Per week 8. 80 

Per annum 457. 61 

Coals (in the year), 5 tons, at 25s. ($6.08) 30.42 

$488. 03 

Servant's wages 38. 93 

Clothing: 

The clerk 73.00 

His wife 43.80 

His children 38. 93 

-. 155. 73 

Medical attendance on family (average) 14. 60 

Renewal and repair of furniture, house linen, &c 19. 46 

Fire insurance on furniture £200 ($973.30), premium 5s. ($1.22), duty 6s. 

($1.46) 2. 68 

Pocket money for omnibuses, and other incidental personal expenses 19. 46 

Education of children 

Sittings in place of worship 

Excursion into country during vacation 

Wine and spirits 

Insurance on life, to make some small provision for his family in the event 
of his decease 

Total annual expenditure 892. 37 

The salary of a civil-service clerk appointed since August, 1829, amounting 

to £200 ($973.30) is subject to the following deductions: 
Superannuation abatement. Is. in the pound (5 per cent) £10. $48. 67 
Income tax. Is. 4d. in the pound (6| per cent) £12 13s. 4d. . « 61. 64 

$110. 31 



Leaving the net amount to be received by him 862. 99 

So that a nominal salary of £200 ($973.30) per annum, unsupported 
by private resources, would be insufficient to enable the clerk to 

meet the above expenditure to the extent of 29. 38 

892. 37 

The combined effect of superannuation abatements and income 
tax on the salary of the civil servant was shown by the following 
statement : C*) 

o The amount here given is according to the original report. Calculated on the 
basis shown, it should apparently be £13 6s. 8d. ($64.89). 
b Report on Civil Service Superannuation, 1856. Appendix No. 14, p. 452. 



54 CI?IL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

COMBINEP EFFECT OF SUPERANNUATION ABATEMENTS AND INCOME TAX. 

[Statement showing the difference between the nominal salary of a civil servant appointed since August, 
1829 and the net amount payable to hun after deducting the superannuation abatement and income tax, 
on salaries from £80 (S389) to £500 ($2,433).] 





Deductions for— 


Net 




Nominal yearly 








Remarks. 


salary. 


Super- 
annua- 
tion. 


Income 

tax. 


Total. 


amount. 




$389.32 


$9.73 




$9.73 


$379. 59 




437. 99 


10.95 




10.95 


427. 04 


Superannuation, 6d. ($0.12) per pound ($4.87). 


486. 65 


12.17 




12.17 


474. 48 




510. 98 


25.55 




25.55 


485. 43 


Superannuation, Is. ($0.24) per pound ($4.87). 


a 535. 32 


26.77 


"$24." 35" 


51.12 


484. 20 




583.98 
632. 65 
681.31 


29.20 
31.63 
34.07 


26.58 
28.77 
31.00 


55.78 
60.40 
65.07 


528. 20 
572. 25 
616. 24 


Superannuation, Is. ($0.24) per pound ($4.87). 
Income tax. Hid. ($0.23) per pound ($4.87). 


729. 98 


36.50 


33.21 


69.71 


660. 27 




778. 64 


38.93 


49.31 


88.24 


690. 40 




827.31 


41.37 


52.40 


93.77 


733. 54 




875. 97 


43.80 


55.48 


99.28 


776. 69 




924. 64 


46.23 


58.56 


104. 79 


819.85 




973. 30 
1,216.63 
1,459.95 


48.67 
60.83 
73.00 


61.64 
77.05 
92.46 


110.31 
137.88 
165. 46 


862. 99 
1,078.75 
1,294.49 


Superannuation, Is. ($0.24) per pound ($4.87). 
Income tax. Is. 4d. ($0.32) per pound ($4.87). 


1,703.28 


85.16 


107. 87 


193. 03 


1,510.25 




1,946.60 


97.33 


123. 28 


220.61 


1,725.99 




2, 189. 93 


109. 50 


138. 70 


248. 20 


1,941.73 




2, 433. 25 


121.66 


154.11 


275. 77 


2, 157. 48 




6 2,433.25 


m 


162. 22 


162. 22 


62,271.03 





a It will be observed that upon the promotion of a clerk from £105 ($510.98) to £110 ($535.32) he is a posi- 
tive loser by the step. 
b Salary of an officer appointed prior to August, 1829, and therefore exempt from superannuation tax. 

(d) FREE PENSIONS DESIRED WITH COMPULSORY DEDUCTIONS FOR 
PURPOSE OF LIFE INSURANCE. 

Taking all these facts into consideration, and realizing besides the 
actuarial unsoundness of certain features of the existing superannua- 
tion scheme, as will be explained later on, Doctor Farr threw the weight 
of his influence with the arguments of those civil servants who asked 
that pensions be granted free by the State and that a compulsory- 
insurance fund be formed out of 2^ per cent deductions from all sal- 
aries above £100 ($486.65) a year. This would have been a decided 
improvement over the existing scheme, as it meant practically an 
increase of 2^ per cent in salary, an insurance benefit in case of death, 
and a pension in case of superannuation. The advisability of so 
arranging matters as to make it possible to compel the civil employee 
to insure his life was thus set forth by Doctor Farr: 

The utility of life insurance is universally admitted. Insurance 
could be effected on very advantageous terms by the servants them- 
selves: it would save many hundreds of families from deep distress; 
and it would raise the character of the service. Upon this subject 
there are now differences of opinion, but those who differ from the 
committee are equally animated by a desire to leave a provision for 
their wives and their children: they think that it should be done 
entirely on the voluntary principle; I, on the contrary, think that it 
should be to a certain extent on a settled principle, for reasons which 
I will very briefly state to the committee. Children, women and 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 55 

men advanced in years can rarely earn enough to supply themselves 
with subsistence. Men who enter a profession have therefore, during 
their years of active life, not only to supply the current wants of their 
families, but to make a provision for the infirmities of sickness or age, 
and, in consequence of the mortality of their nature, for their widows 
and children. In Great Britain, to every 100 wives, there were at the 
census 23 widows living: there are now living about 2,300 widows of 
deceased civil servants, and an unknown number of fatherless chil- 
dren, which the returns leave undetermined. The children of pos- 
sessors of property are naturally provided for under our laws, and the 
children of the man whose income is derived from his industry gener- 
ally enjoys the same privilege; but the source of income depending 
on his life, they are liable at any time to be thrown on the community 
for support, which is, in a high degree, precarious. In the middle and 
in the higher classes they are practically thrown upon the hands of 
their relatives, of the charitable, and, in some rare instances, of the 
parish. Life insurance meets the risk of mortality; but it unfortu- 
nately happens in all professions, and in the civil service among others, 
that life insurance to an adequate extent is not effected by the great 
majority of husbands, and more particularly by those whose lives are 
most liable to be cut short, and whose large families are likely to prove 
the severest pressure of want — the heaviest burden on the commu- 
nity. Society has therefore a right, and, whenever an opportunity 
offers, perhaps a duty, to see that such a deduction is made from the 
adequate income in active life as will lighten the sufferings of the 
fatherless children and widows of its members. If the Government 
set the example in the public service, it may be copied by other 
classes, and would ultimately prove a great boon and an economy to 
the nation. (*) 

The amendment to the superannuation bill relating to insurance 
proposed by Mr. Bromley and his adherents and indorsed by Doctor 
Farr was as follows : 

And whereas great distress from time to time occurs amongst the 
families of deceased civil servants, and various efforts have been made 
to establish departmental benevolent funds for their relief, but all 
such funds have failed without contributions being made in aid thereof 
by the State, or indirect assistance afforded in the collection of the 
same ; it is expedient that such contributions or assistance, if given at 
all, should be for the general benefit of the whole service, and not for 
particular departments ; it is therefore directed that from and after the 
first day of April one thousand eight hundred and fifty-six, when the 
abatements made under the twenty-seventh section of the aforesaid 
act shall cease, there shall be an abatement made in quarterly or 
monthly proportions, by the proper officer in each department, from 
the annual salaries of the several officers and persons employed in the 
civil offices and departments to which this act applies, who have since 
the fourth day of August one thousand eight hundred and twenty- 
nine entered or shall hereafter enter the public service, the amount of 
which abatement shall be at the annual rate of two pounds and ten 
shillings per centum [2 J per cent]. The amount so abated and 
brought to account in the books of each respective department shall 

o Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 184. 



56 CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 

be paid over quarterly to the National Debt Commissioners, for the 
purpose of forming a "Civil Service Insurance Fund," in which name 
an account shall be opened in the books of the Bank of England, and 
such fund shall be directed and controlled for the benefit of each 
individual contributor, upon the common principles of life assurance, 
by such persons and in such manner as the lords commissioners of Her 
Majesty's Treasury may from time to time direct; and in making such 
settlement full credit shall be given to each individual who may have 
already contributed in aid of the aforesaid sum of eight hundred 
thousand pounds [$3,893,200], in fixing the amount of insurance to 
which his contributions may entitle him; all which proceedings and 
regulations shall from time to time be laid before Parliament, and the 
accounts of the said fund shall be submitted periodically to the com- 
missioners for auditing the public accounts, and after each annual 
audit by them, a copy of the said account, with the report of the 
auditors thereon, shall be by them laid before Parliament. (") 

Mr. Bromley's reasons for advocating this measure, as explained to 
the committee, make an interesting contribution to a discussion 
which has continued down to the present year. Said he : 

The very great distress in the lower ranks of the service induced me 
to take up this question, and I was at the time encouraged to do so by 
the debate in Parliament in March 1844, relative to the distressed 
state of the family of Doctor Morrison, who died in China, after he had 
rendered valuable public service. 

All attempts to form voluntary funds for the purpose had failed ; an 
order in council was obtained in 1819 to establish a fund in the Admi- 
ralty, but it did not succeed. Indeed, the distress in the revenue de- 
partments was admitted by the Government to be so general, that in 
the Customs a benevolent fund was established by act of Parliament 
in 1816; it was however found necessary to require a compulsory con- 
tribution for its support, added to which, the profits of the bill of 
entry (somewhat analogous to the profits of the London Gazette) 
were given up by the Government in aid thereof. 

In the Post-Office the Government have allowed the property 
found in dead letters to be applied in aid of a charitable fund. 

In the Inland Revenue, the Government assist the Atlas Assurance 
Office in collecting premiums, &c., from officers who insure in that 
office under certain advantages. 

In the Ordnance Department certain pensions are paid to the 
widows of clerks by the Government. 

If the principle is correct in these cases, it does not appear to be 
just to exclude other civil servants from such advantages; and as 
the compulsory principle has been adopted by Parliament with re- 
spect to a large body of its civil servants, although the great majority 
of them derive no benefit therefrom, it does appear to be sound poHcy 
to extend that system to all, to be coupled, however, with this most 
just provision, that the proposed contributions shall be applied for 
the benefit of each individual, according to the value of his contribu- 
tion. 

o Report on Civil Service Superannuation. 1856. Appendix No. 9, p. 417. 



CIVIL-SEE VICE RETIREMENT IN GREAT BRITAIN. 57 

It has been ascertained that 83 per cent of civil servants are un- 
insured in the local funds already established, notwithstanding the 
aid afforded them by the Government. 

It is doubtless higher ground to advocate the voluntary rather 
than the compulsory principle of life insurance, and were its truth- 
fulness equally enforced by experience, it might require no arguments 
to recommend its adoption; but unfortunately in this, as in most 
other instances, there is a wide discrepancy in human conduct be- 
tween what ought to be and that which actually takes place; and it 
is to be feared there is no alternative in this case but to fall back upon 
some inflexible law external to itself; and this I conceive will best 
be met by a compulsory conversion of a moiety of the present super- 
annuation assessments into an insurance fund, for the benefit of rep- 
resentatives of deceased civil servants. 

This is no new theory which it is desired to urge upon the State 
or the public; as, in the case of the navy and army services, provi- 
sion is made, as a rule, for the wives and families of naval and military 
servants, independently of the additional pension granted for loss 
of life in action, there is likewise a compulsory abatement imposed 
upon the whole medical force of the Navy for the support of their 
widows only; the East India Company likewise enforces a contribu- 
tion from its servants for the support of their families; the Emperor 
of the French has also established a compulsory provision for the 
families of the employees of the State. The Bank of England re- 
quires its servants to insure their lives, and several private estab- 
lishments have adopted a similar course. 

Such a concurrence of testimony, and from such various sources, 
must be considered, upon all fair terms of reasoning, as incontro- 
vertibly establishing the principle under consideration. 

It is, therefore, from the conviction that the position of the civil 
servants will be materially improved by the adoption of the com- 
pulsory principle of life insurance, and also from the consideration 
that the State is preeminently interested in relieving its servants as 
much as possible from the cares and desponding influences which 
can not fail to have a most depreciating effect upon their official 
energies, that I am induced to lay such stress upon the formation of 
this fund by an appropriation of one-half of the present superannua- 
tion percentage to that purpose, remitting the remaining half to the 
civil servants to meet immediate exigencies. C*^) 

(3) Distrust of actuarial soundness of i^lan embodied in Act of 1834. 

In the third place there was distrust of the actuarial soundness of 
the plan. This was not so general, however, as might be supposed. 
The statement is frequently made that the contributory plan failed 
in England because it was found in 1857 that the superannuation 
fund was hopelessly insolvent; that it was therefore turned into the 
general exchequer and pensions were thereafter paid by the Govern- 
ment. This is not strictly correct, because, as has been shown in 
the previous pages, no fund was established under the Act of 1834, 

a Report on Civil Service Superannuation. 1856. Appendix No. 9, p. 417. 



58 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

and the contributions had been turned into the general exchequer 
from the very beginning. Furthermore, even if there had been a 
fund and it had been found in a very satisfactory condition, the sec- 
tion of the act which provided for contributions from the civil serv- 
ants would probably have been repealed in 1857 just as it was, for 
the discontent of the civil servants, which moved Parliament to act, 
rested, as has been shown, on quite different grounds. They brought 
no charge of insolvency against the fund, but rather one against the 
Government of confiscation of property rights and inequitable treat- 
ment as between different classes of the service. Instead of believing 
the fund insolvent — supposing their contributions had been funded — 
the civil employees were inclined to believe that their contributions 
had been much more than adequate for the payment of their pen- 
sions, as shown, for instance, in the last sentence of Mr. Harris's 
letter quoted above: ''It (the deduction) is not only more than 
enough to reduce that charge, but sufficient to confer a large benefit 
on noncontributors." The final action of the Civil Service Super- 
annuation Commission which was appointed to succeed the Select 
Committee in 1857 was taken quite without reference to this actuarial 
question of the adequacy of the contributions; in fact, it was not 
known until nearly a year after the abolition of deductions had been 
recommended by the commission that the contributions of the civil 
servants were inadequate for the payment of the pensions provided 
under the Act of 1834. 

Before the Select Committee went out of existence it engaged 
Messrs. Arthur Morgan, F. R. S., actuary to the Equitable Society 
of London, and Charles Ansell, F. R. S., actuary of the Atlas Assur- 
ance Office, to prepare answers to certain questions. Messrs. 
Ansell and Morgan furnished the committee with such information 
as was within their power; but with reference to the most important 
question submitted to them, namely, whether the deductions taken 
under the Act of 1834 were more than adequate to meet the charge 
under the act for this class of civil servants, they declared their ina- 
bility to give a satisfactory answer "until they should be provided 
with certain voluminous statistical returns with reference to the 
civil servants employed in the different public offices, and until they 
should have had time to complete the laborious calculations which 
would be required for extracting the desired information from these 
returns." The committee was obliged, therefore, to conclude its 
labors without the desired information, and the Superannuation Com- 
mission, which succeeded it, was prepared with its report in May, 
1857, long before the actuaries were ready to answer the question 
asked of them. So laborious did they find their task that not until 
March 19, 1858, were the actuaries able to submit their report. In 
the meantime, the commission, not comprehending the technical 



CIVlL-SEKVICE RETIREMENT IK GREAT BRITAIN . 59 

difficulties of the subject, and therefore not inchning to distrust their 
own conclusions, had made various recommendations, and toward 
the latter end of the session of Parliament, 1857, an act was passed 
for effecting the abolition of abatements from salaries, the most 
important of their suggestions. "Having found," wrote the com- 
missioners, "on a full consideration of the subject referred to us, 
that our recommendations could not be affected by the result of these 
inquiries of the actuaries, we did not consider ourselves justified in 
withholding our report until we were acquainted with the conclu- 
sions at which they might arrive." 

When the report of Messrs. Ansell and Morgan was finally com- 
pleted the following year, the commissioners transmitted it to the 
Lords Commissioners of the Treasury with the following comment : 

It will be seen that, with regard to the main subject of their inqui- 
ries, Messrs. Ansell and Morgan are decidedly of opinion that the 
deductions made from the salaries of the civil servants, under the 
authority of the Act of 1834, were not adequate to meet the charge 
to which the public was liable under that act. This conclusion may 
be considered a sufficient answer to the claim which was made on 
behalf of the civil servants, on the ground that the deductions were 
more than sufficient to provide the retired allowances, and that the 
public were making a profit of the transaction at the expense of the 
civil servants. But as we expressly repudiated in our report the 
notion of any contract between the public and the body of the civil 
^servants, and as we founded our recommendation of the abolition of 
deductions upon totally different grounds, our conclusions cannot 
be affected by any opinion at which the actuaries may have arrived 
on this question. ("') 

While it can not be said, therefore, that there was any general 
appreciation of the fact that the superannuation scheme established 
by the Act of 1834 was actuarially unsound, study of the hearings 
shows that most of the witnesses questioned the reasonableness as 
well as the justice of some feature of the plan, and those witnesses 
who had special knowledge of statistical or actuarial problems 
pointed out its inconsistencies or dangers. 

The chief actuarial faults of the plan were two, and these two faults 
were criticised more or less blindly by various witnesses before the 
Select Committee who felt that something was wrong but found dif- 
ficulty in defining it. They were (1) the provision for flat-rate assess- 
ments, and (2) the lack of provision for taking care of the accrued 
liabilities. 

(a) FLAT-RATE ASSESSMENTS CONSIDERED INEQUITABLE AND POSSIBLY 

INADEQUATE. 

The law provided for a flat-rate assessment of salaries regardless 
of the age at which contributors entered the service — an arrangement 
which is always unjust to the younger contributors. The rates of 

«■ Supplemental report on the Operation of the Superannuation Act. 1858. p. 3. 



60 CIVIL-SEEVICE RETIEEMENT IN GREAT BRITAIN. 

contribution of 2^ per cent on all salaries of £100 ($486.65) and under 
and 5 per cent on all salaries above £100 ($486.65) were, of course, 
inadequate to provide retiring allowances ranging from fifteen-six- 
tieths of salary after ten years' service up to forty-sixtieths after 
forty-five years' service. While this was not the issue before the civil 
service or before Parhament, which had become disgusted with the 
plan on other grounds, it is fortunate for students of the subject that 
actuaries were engaged to inquire into the sufficiency of the deduc- 
tions to meet the claims under the law, because the result of their 
valuation shows very clearly the practical difficulty of making any 
plan self-supporting which is based on flat-rate contributions required 
without reference to the age at which the contributors enter the serv- 
ice. While theoretically it may be a simple matter to fix a flat rate 
of contribution which will be adequate in a given problem, practi- 
cally it never seems to be feasible owing to the difficulty of valuation, 
and the experience of Great Britain is simply corroborative of the 
general rule that a superannuation plan based on flat-rate assess- 
ments usually means too low a rate and therefore inadequate con- 
tributions, leading ultimately to the insolvency of the superannuation 
fund. Since there really was no fund to be insolvent in this case, and 
since there was nothing in the Treasury minute of 1829 or the Act of 
1834 to indicate that it had been the intention of the Government to 
make the contributions sufficient to meet the charges, the inadequacy 
of the rate of contributions can hardly be justly criticised in this plan. 
The language of the act sanctioning the Treasury minute, "with a view 
to reduce prospectively the charge incurred in providing for super- 
annuation allowances," was not such as to indicate that the Govern- 
ment did so with the expectation of making the plan entirely self- 
supporting. The discovery that the contributions were inadequate, 
unexpected as it was, merely showed the British pubhc the undesir- 
ability, from a new viewpoint, of the plan which they had already set 
aside for other reasons. 

But the injustice of the flat-rate assessment as between individ- 
uals was apparent to many before it was known that the rate was 
inadequate. "It is the grand and fatal objection to the scheme as it 
at present exists," said Doctor Farr to the committee, "that there is 
no proportion between what is taken and what is given." And again 
he said, "Under the present arrangement there is no equitable rela- 
tion between the premium paid and the benefit granted; I prove to 
you that in a large class of cases you take too much, and, on the other 
hand, I say that in those cases where a clerk remains on a low salary 
for a great many years, and then goes up to a high salary, and is 
superannuated on the high salary, he evidently gets from you more 
than his premium would entitle him to under the principles of equita- 
ble insurance." In answer to a request of the committee that he 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 61 

explain the effect of the deductions, looking at the question as a ques- 
tion of insurance, Doctor Farr differentiated very clearly between the 
two questions involved in the flat-rate deductions from salary and 
the benefits provided thereby — the question of equity on one hand 
and the question of the adequacy of the contributions on the other. 
Said he: 

I have looked into that question carefully, and I will state very 
shortly my opinion upon that subject. I gather from the 27th sec- 
tion of the Superannuation Act that it was the intention of the Legis- 
lature to make the officers in the civil service pay only a portion of the 
premiums to provide for superannuation allowances, not the full 
premium. But the question of equity, which was, I believe, first 
raised by Mr. Gladstone, can only be discussed in this form: Does 
the act take from the salary of each ofiicer quarterly the precise pre- 
mium which, on the principles of life insurance, will provide the super- 
annuation allowance? Is more or less deducted than the just pre- 
mium? The question of equity must thus arise on each case, and on 
every separate class of cases, as in life insurance, where a man of the 
age of 30 can insure £100 [$486.65] by an annual premium of £2 [$9.73], 
and if this man is compelled to pay £4 [$19.47] a year instead of £2 
[$9.73] the injustice is not repaired by another transaction in which 
a premium of £2 [$9.73] only is taken from a man of 51 years of age, 
who ought strictly to pay £4 [$19.47] a year premium to secure £100 
[$486.65] at death. It is important, then, to discuss the two questions 
separately. First, Is each civil servant dealt with as fairly and 
equitably under the Superannuation Act as a person who insures his 
life at a life office? The second question would be. Will the public 
exchequer gain or lose by the superannuation system of the Act of 
1834? That is a totally different question from the question of 
equity; the first question I answer, without any hesitation, in the 
negative. The scheme is full of injustice, for there is no definite rela- 
tion between the premium and the promised annuity. 

Doctor Farr then proceeded to illustrate the inequity of the scheme 
by a calculation relative to fixed salaries, showing that in a numerous 
class of cases a great deal too much was deducted for the object con- 
templated. As regards ascending salaries, he showed that the deduc- 
tions were often much too low and often too high. He said: 

The act stops 6d. in the pound [2| per cent] on salaries not exceed- 
ing £100 [$486.65] a year, and Is. [5 per cent] in the pound on salaries 
exceeding £100 [$486.65] a year. What does it promise in return? 
It is not easy to reply ; but it lays down a maximum allowance rang- 
ing in amount from three to eight-twelfths of the salary; that is, from 
15-60ths to 40-60ths, wliich the Treasury has practically reduced in 
many cases to 12-60ths and 32-60ths of the salary. In the calcula- 
tions which I am about to submit to the committee I leave out of 
account all the contributions of persons who quit the service, and I 
assume that the maximum allowance is paid, that the fifth is not 
deducted. The salaries in the public service are paid in a great vari- 
ety of ways, which may be referred to two great classes; first, fixed 
salaries; second, ascending salaries on a great variety of scales, as 



62 CITIL-SEEVICE KETIEEMEISTT UST GREAT BRITAHsT. 

will be seen in the estimates of the year; sliding scales they may be 
called. I will take first the fixed salaries, on which the highest and 
many of the lowest ofiicers are paid ; they present the simplest cases ; 
and I shall assume that the allowance is of the nature of a deferred 
annuity, the premium being uniform and constant. The annuity 
which the invariable premium will purchase varies, first, with the 
age of entr}^, and, secondly, with the age at the date of superannua- 
tion. Let the salary be £200 [$973.30] a year; it is difficult to form 
a calculation of this sort; I have therefore made the case as simple 
as possible, but on this case all other cases of this kind can be decided; 
then the premium will be £10 [$48.67] a year; the age of entry ranges 
from 17 to 45 years. I have returns showing the ages of entry, which 
are very various. The period of service ranges from 10 to 60 years, 
as is shown by the Table which I have submitted to the committee. 
If the age of entry is 25 years, and the period of service 40 years, the 
premium purchases £159 ($773.77), while the act allows at the utmost 
£116% ($567.76), which the Treasury rule may reduce to £93 3/^ 
($454.21). Assuming that the grant is represented by a deferred 
annuity, that is a strict calculation, which would be made on the same 
principle as a calculation for a life ofiice. If the age of entry is 20, 
and the period of service 45 years, the premium pays for an annuity 
of £206% ($1,005.71) ; the act allows at the utmost £133H ($648.87), 
or, after the fifth has been deducted, £106% ($519.09). Take a high 
office, salary £2,000 ($9,733), age of entry 30, period of service 40 
years; the premium purchases an annuity of £2,349 ($11,431.40) ; the 
act allows £1,166 ($5,674.34). If the period of service is 45 years, 
the officer pays for an annuity of £5,229 ($25,446.93), and is allowed 
£1,333 ($6,487.04). Again, the act grants the same proportion of 
salary for two entirely different rates of premium; this is a violation 
of the principles of equitable insurance; if 2^ per cent is enough, five 
is too much; but take one of the lower offices, salary £100 ($486.65); 
age of entry, 20; service, 50 years; the premium of 24- provides an 
annuity of £99 ($481.78) ; the act allows £66% ($324.43"), reduced by 
the rule to £53 1/^ ($259.54). The sickness and infirmity under the 
age of 65, if real, must in nearly all cases shorten life, shorten the 
term of the annuity, and therefore diminish its value. In this numer- 
ous class of cases too much is evidently deducted; in another series 
of cases the deduction is insufficient. The fund may even be worked 
against the public by officers being put in young and remaining for 
10 or 15 years, and then leaving in a state of health little impaired. 
Thus by entering on salaries of £100 ($486.65) a year, and remaining 
10 years, they would pay £2 10s. ($12.17) a year, or £25 ($121.66), 
which would purchase an annuity of £1 13s. ($8.03) during their 
future lives; the annuity granted is £25 ($121.60) or £20 ($97.33), 
and you might lose £18 ($87.60) a head annually. The sliding- 
scale salary is uncertain in its operation, and varies almost in every 
office; its tendency is to raise the rate of allowance; in some cases 
the fund gains, in others it loses enormously. 

In the absence of definite data as to the age, length of service, and 
salary increases of members of the service, such as were afterward 
collected and furnished to Messrs. Ansell and JMorgan, Doctor Farr was 
unable to give a positive answer to the second question, Will the 
public exchequer gain or lose by the superannuation system of the 



CIVIL-SERVICE EETIREMENT IN GREAT BRITAIlSr. 63 

Act of 1834? While he said that he beheved the Government would 
gain on the whole, under a strict interpretation of the act, thus con- 
curring in the impression which prevailed among the civil servants 
generally, he stated distinctly that his opinion was not the result of 
any strict calculation, such a calculation being impossible under the 
circumstances. He said : 

I think the committee clearly understands that the cases which I 
have put here, in a more distinct form, show that the deductions 
from a large number of the salaries will provide annuities of a greater 
amount than are actually paid under the act of Parliament. I con- 
ceive that in many cases the civil servants do not pay a sufficient 
sum to provide the annuity, and that is particularly the case in the 
various kinds of sliding scales, where the salaries begin very low, and 
remain low, and then go up to the high sum on which the super- 
annuation is paid; but the number of those scales is so numerous, 
that it is exceedingly difficult to form any calculation as to the 
aggregate result; that is, whether the Government will gain or lose 
by the whole transaction ultimately. * * * j^ appears to me, on 
the whole, that the public servants pay too much. If you take the 
whole, as a class, the Government would gain rather than lose by the 
transaction, if the act of Parliament was carried out strictly; but I 
merely wish the committee to consider that as my general opinion; 
it is not the result of any strict calculation; such a calculation is, as 
far as I see at present, impossible. 

Doctor Farr pointed out too that the 5 per cent deduction had 
not been fixed on as the result of any scientific calculation. Said he: 

I have often asked on what data the rate of deduction of five per 
cent was fixed ; whether any calculations had been made by the Gov- 
ernment; and I have not been able to ascertain that any calculations 
have been made. The first traces of this rate appear in the Act of 
1822; but the terms of that act were very different from the harder 
terms of the Act of 1834. * * * -pj-^g committee will see that the 
Government of 1834 appears not to have had any calculation them- 
selves in fixing this rate of five per cent.('*) 

While unwilling to commit himself, in the absence of a. reliable 
salary scale, to any positive statement about the adequacy of the 
contributions in the aggregate to meet the charge of superannuation, 
Doctor Farr presented numerous tables to show that the value of the 
contributions was greater than the value "of the pensions to all the 
faithful employees who had devoted many years to the service of 
the Government. ''I think," said he, ''that the faithful public 
servant who remains at his post, undoubtedly pays more than the 
value of his pension by his deductions, but those who remain a short 
time, or go out in a state of perfect health, make an excellent bar- 
gain. They derive a large profit from the Government." This was, 
however, an illustration of the inequity of the scheme and proved 
nothing as to the adequacy or inadequacy of the sum of contributions. 

a Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 173. 



64 CIVIIi-SEKVICE EETIEEMENT IN GREAT BRITAIN. 

Doctor Farr's opinion that the existing superannuation scheme was 
unfair and inequitable was shared by other eminent actuaries of the 
day. Five of them signed a statement to that effect which they pre- 
sented to the committee in which they also upheld Doctor Farr's con- 
tention that the value of the pensions was considerably less than the 
value of the contributions. This declaration was as follows: ("') 

We have examined the statements and calculations with reference 
to the pensions granted after various periods of service, to civil 
servants, and we are unanimously of opinion — 

1st. That the deductions of 2^ per cent, on some salaries, and 5 
per cent, on others, are unjust, because the pensions of those who 
remain long in the service, and have paid the higher rate for a longer 
time, are virtually diminished, to make up the pensions of those who 
retire early, the larger proportion of whose payments may have been 
at the smaller rate. 

2nd. That the age of entry, and the age of receiving the pension, 
not being duly considered, those who have paid the fewest number 
of contributions may in many cases receive much more than the pro- 
portionate annuity; and the effect must necessarily be that the remain- 
ing pensioners have not the full benefit which they could obtain from 
their deductions of salary if the fund was managed on the same prin- 
ciples as it would be in an assurance or annuity company. 

These tables show that the average value of the pensions actually 
granted is considerably less than that of the pensions that should 
be given for the contributions deducted from the salaries of officials 
in the civil service, even leaving out of view the profits arising from 
resignations, and discharges, and the Treasury deduction of 20 per 
cent. 

J. Hill Williams, 
English and Scottish Law Life Assurance Company. 
Edwin James Farren, 
Actuary, Gresham Life Insurance Co. 
Robert Tucker, 
Pelican Life Insurance Office. 
Charles Jellicoe, 

Eagle Insurance Co. 
Samuel Brown, 
Actuary of the Guardian Assurance Company. 

Doctor Farr's belief that the deductions from salary were more than 
sufficient to pay for the benefits under the act was also indorsed 
by every actuary called before the committee, including Thomas 
Rowe Edmonds, esq., actuary of the Legal and General Assurance 
Society of London, Charles Ansell, esq., actuary of the Atlas Insurance 
Office, and Peter Hardy, esq., actuary of the London Assurance 
Company. The fact that the careful investigation of Messrs. Morgan 
and Ansell later proved that the employees' contributions were inade- 

« Report on Civil Service Superannuation. 1856. Appendix No. 14, p. 448, 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 65 

quate in the aggregate is a striking illustration of the difficulty 
attending any rough calculations in which there is a flat-rate contri- 
bution made without reference to entrance age and resulting in a 
commingling of assets. 

(b) ACCRUED LIABILITIES POSSIBLE CAUSE OF INSOLVENCY IN CASE OF 

FUND. 

It is possible, of course, that with the high rate of interest then 
prevailing, the deductions of 2 J and 5 per cent might have been 
sufficient to meet the charges under the act, but for the second great 
actuarial fault in the plan, the fact that no provision had been made 
to take care of the accrued liabilities. There were naturally a great 
many elderly persons in the service in 1834 at the time of the passage 
of the act who became superannuated immediately and retired from 
the service on an allowance. There were a great many others retir- 
ing every year thereafter whose contributions had been small in 
comparison to the benefits which they began to receive immediately 
on retirement. Had the contribution been funded, the fund would 
have become insolvent in its efforts to carry the retirement of the 
older employees through taxation of the younger employees alone. 
It would have reached this stage soon after the investigation of 
1856, and when the employees who were young in 1829 and who had 
been contributing to the fund all the intervening years became super- 
annuated there would have been nothing left on which to retire 
them. Plain as the necessity for a sharp line of demarcation between 
past liabilities and future liabilities is to the student of retirement 
plans, it seems remarkable that it should have escaped the ministers 
of the British Government who brought forward the Superannua- 
tion Act of 1834, except that this mistake is one that has been com- 
mon to many ministers in other countries who have wrestled with 
the problem of superannuation and to the managers of fraternal 
benefit associations the world over. That ''hindsight is better than 
foresight" was well exemplified, however, in the follewing colloquy 
between the chairman of the Select Committee and Sir Charles E. 
Trevelyan : 

Although the act of Parliament is very loosely worded, yet, seeing 
the statements made by the two persons charged with bringing 
forward this measure, does it not appear to you that the intention 
clearly was, that the persons contributing to the fund were to have 
an interest in that fund for their own benefit, and that it was not to 
be made a subject of debtor and creditor with the whole civil service, 
including those branches of the civil service which, previously to 
1829, had established their exemption from contribution? 

That is my view. 

Supposing the minister of the day had fairly put the question 
before Parliament thus: "Here is a service which, previously to 1829, 

35885— S. Doc. 290, 61-2 5* 



66 CrVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIE". 

has been chargeable upon the country for superannuation, but, in 
order to reheve the pubHc from that for the future, we will make a 
compact with those who hereafter enter the service that they shall 
contribute to a superannuation fund;" would not then a clear separa- 
tion have been made between those who contributed to the fund and 
those who were entitled to claim superannuation allowances without 
a contribution? 

In those days the class of public servants interested in this matter 
hardly existed; they only commenced in the year 1829; they were 
only five years old in official life in the year 1834, when the act was 
passed; they were mere youths; their interests were not thought of; 
that parliamentary return was made out with very little regard to 
them; the question had not been raised; there had been no discus- 
sion about it. I conceive that if the annual parliamentary return 
had been made out according to the intention and spirit of the act, 
it would have been divided into two ; the first portion would have 
been for the old servants who received the higher rate of pension, and 
whose pensions were entirely charged upon the consolidated fund, 
and who had no deduction from their salary. The other portion 
would have shown a debtor and creditor account of the receipts in 
the shape of deductions from and of the payments in the shape of 
pensions to the new class. (") , 

That the actuarial objections to the plan established under the Act 
of 1834 were not more generally understood was undoubtedly due to 
the fact that they were somewhat obscured by the failure of the act 
to direct the formation of a superannuation fund. Had there been 
a fund in the strict sense of the term and had the accounts been care- 
fully kept, the atmosphere would have been clearer, and the inade- 
quacy of the rates to meet future liabilities and the insufficiency of 
the fund to cover past liabilities as well would undoubtedly have 
been perceived much earlier than was the case. A great deal of the 
committee's time was consumed in questioning witnesses and dis- 
cussing with them the probable meaning and intention of the Legis- 
lature when it passed the Act of 1834 without mention of a fund and 
the difference such a provision would have made in the claims which 
the civil servant might or might not have had on the country. It 
was estimated that in the twenty-seven years that had elapsed since 
the passage of the Treasury minute of 1829 the civil servants had 
lodged about £800,000 ($3,893,200) with the Government. A reading 
of the evidence shows that there was a deep sense of injury among the 
civil servants but no very clear perception of where the trouble lay. 
Frederick Locock of the Colonial Ofhce wrote the Select Committee 
on April 13, 1856, in a way that suggests, however, that he at least 
felt the Government had done wrong in not investing the civil serv- 
ants' money and keeping a strict account of it. Said he: 

What greater advantage * * * will accrue to the clerks 
through their savings being invested by the Government, than when 

o Report on Civil Service Superannuation. 1856. Minutes of evidence, pp. 15, 16. 



CIVIL-SEEVICE EETIKEMENT IN GREAT BRITAIlSr. 67 

invested by themselves? Greater security, indeed, they would seem 
at first sight to gain; besides also the expenses of management being 
saved to them. But to what has this plan already practically been 
found to lead? Calculations have been made which seem to show 
that the Government has, for these twenty years past and more, for- 
gotten what was the essential principle, the virtual understanding, on 
which such a plan must be framed. It has forgotten that the savings 
of a man's income are his own property equally with the income itself. 
It has forgotten that contributions given for a special object can be 
applied to that object alone. It has forgotten to put out the deduc- 
tions to interest, and has not even so much as hid them in the earth, 
but has said, ' 'Lo, there thou has thine own in part, but the rest I have 
given to others." Yea, strong indeed in possession, but weak in posi- 
tion, it has even been driven to deny the right of the clerks to the full 
amount of their income itself. Where then is the security? Where 
the advantage? Let not the Government any longer talk of special 
reward, when even the daily wages it has withheld; for not reward, 
not bounty, not compensation is here in question, but the simple 
restitution of what is due, the rendering an account of monies 
entrusted. ("-) 

In the absence of knowledge to the contrary, the belief was general 
that the Government had made money by taxing its employees, and 
this belief undermined the loyalty of the service. Its demoralizing 
effect was set forth in strong terms by Sir Charles Trevelyan. Said he : 

I conceive that there has been no breach of faith in reference to the 
abatement>3, but that the arrangement is in its nature inequitable, and 
that it belongs to that class of bad laws which are contrary to the 
natural sense of justice of mankind; in criminal jurisprudence the 
effect of such laws is that juries will not convict upon them. In civil 
administration the effect is, that they obstruct and baffle all our 
endeavors for the improvement of the civil service. However much 
we may endeavor to improve first appointments, (^) to establish the 
principle of promotion according to qualifications and merit, to con- 
solidate cognate establishments, to make a proper division of labor, 
or to fix responsibility, this question of abatements continually meets 
us, by raising discontent. Organization is a very important thing, 
but the maintenance of a proper feeling and spirit on the part of the 
public servant, is a still more important consideration; rules and sys- 
tems are a poor security compared with that habitual sense of duty 
which induces a public servant, under all circumstances, to do the best 
he can for the public as a faithful steward of his time and opportuni- 
ties ; and that sense of duty can not be practically arrived at without 
the sentiment and feeling that the servants are equitably and gener- 
ously dealt with. 

According to general understanding in such cases, the Government 
in withholding a portion of the salary; that is, of the property of its 
servants, incurs the obligation of applying it in some manner for the 
benefit of the owner. * * * jtj[ terms of service ought to be of a 
very simple kind. Hence the impossibility of getting rid of the idea 

« Report on Civil Service Superannuation. 1856. Appendix No. 13, p. 430. 
b The Civil Service commission had just been established the year before, 1855. 



68 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 

of an appropriated fund. It rises upon us continually, almost daily. 
We have always, although the act did not prescribe it so in detail, 
spoken and written, and in a great measure acted upon the supposition 
of its being an appropriation for the purpose of paying the pensions 
of the contributors. For instance, in the receipt which we give for 
our salaries at the Treasury at the end of every quarter it is said, so 
much deducted for superannuation fund. * * * But there is a 
more painful illustration of it. For years past, and to this day, we 
are continually receiving applications from widows and orphans of 
servants who have died in harness, applying to have the abatements 
restored, and they state that their fathers or husbands have paid for 
so many years, 10, 15, 20, or 25 years, those deductions from their 
authorized salaries, but that they never obtained any benefit from 
them. * * * The answer that has been always returned has been 
that the deductions were made in accordance with the act, and that 
we had no power to restore them; but nothing has been able to 
persuade these poor people that they were not unjustly dealt with. 
I lately got out a bundle of applications of that kind, and the answers 
to them for the last four or five years, a great number, and they 
alone represented a mass of discontent and presumptive grievance, 
which was enough to spoil the tone of any public sevice. {^) 

Defense of Act of 1834 by Men Responsible for its Enactment. 

Interesting light on the reasoning which had led to the passage of 
the Act of 1834 was given the committee by Sir James Robert George 
Graham, a member of the House of Commons, who had introduced 
the measure a quarter of a century before in behalf of Lord Grey's 
Government and Sir Francis Thornhill Baring, a member of the com- 
mittee who had been a lord of the Treasury at that time. They both 
stoutly defended the act they had helped to pass in the one case and 
to interpret in the other, both in respect to the absence of a funding 
provision and the provision for deductions from salaries. Both 
stated positively their conviction that the formation of a fund was 
never contemplated by the Treasury minute of 1829, the Act of 1834, 
or the minute of November, 1834. Sir James Graham would not 
admit that the civil servants suffered any injury in consequence of the 
annual deductions not having been funded, maintaining, indeed, that 
the claim in equity of the civil servants was merely to the amount of 
superannuation laid down by the act, and administered through 
the Treasury, whether such amount were more or less than the 
deductions would provide. It was his recollection that the deduc- 
tions were intended to operate as a reduction of salaries, which should 
more than cover the superannuations of the parties contributing. 
Sir Francis Baring stated, on the other hand, that the reduction of 
salaries was at the time expected to be insufficient to meet the 
expenses of the superannuations, and he felt that if the contrary had 
proved to be the case, it was a question of equity whether they ought 

« Report on Civil Service Superannuation. 1856. Minutes of evidence, pp. 13, 14. 



CiVIL-SEEVICE RETlKEMENT IN GREAT BEITAIlSr. 69 

not to be revised. Both men were agreed that the main object of the 
act had been economy, and that a larger reduction of salaries would 
have been made in 1829 than really was carried out, had it not been for 
the imposition of the deductions. Both regarded the positive notice 
given in regard to the deductions as sufficient answer to the charge of 
inequity. 

Each of them made a statement in defense of the system, however, 
wliich is a sound and interesting contribution to the arguments in 
favor of a contributory plan as against a straight pension. After 
contending that the system was "the best arrangement, on the whole, 
that could have been made," Sir James Graham was asked if he did 
not think the deduction a firmer security for the continuance of the 
pensions than a mere act of Parliament, which might be abrogated 
by a future Parliament, and replied: "Infinitely more security, 
and more steadiness in its operation. This system has existed now 
for 28 years without disturbance, whereas in the short experience 
before that enactment, both Treasury minutes and acts of Parlia- 
ment varied almost every two or three years." In this connection. 
Sir Francis Baring stated that "there is one great advantage for the 
civil servant in the deductions, which is, that they are a shield 
against the House of Commons in any momentary feeling of economy 
running in, and making a great alteration with regard to the retired 
allowances. That is a feeling of which many honorable members 
now around me are not aware; but I was in the House of Commons 
when that feeling did strongly exist, and I know that at the time 
this deduction was taken many of the best and wisest of the civil serv- 
ants, such as Mr. James Stewart, the Assistant Secretary at the 
Treasury at the time, considered it as a great advantage to the civil 
servant as a protection to him, and that he would be safe in future 
from having his retired allowances interfered with." 

It had been argued, on the other hand, by those who opposed the 
system of abatements from salaries, that it put the Government in a 
position of less freedom in dealing with the civil servants than would 
have been the case had there been no such system of deductions. 
Sir Charles Trevelyan said : 

One incidental objection to the abatements is, that it deprives the 
Government of its freedom of action in dealing with its servants; if 
the Government itself gave the pensions from the Consolidated Fund, 
it would be able to deal more freely with all classes of public servants, 
because there would be no vested interests arising from the abate- 
ments. (") 

The special interest attached to this criticism and others like it 
expressed to the conmiittee is the fact that the speaker did not seem 

a Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 55. 



70 CIVIL-SEKVICE KETIEEMENT IN GEEAT BRITAHST. 

to realize that it was an attack on the lack of provision for refund of 
deductions, not an attack on the system of deductions itself. 

Defense of Wisdom of Providing Superannuation Allowances. 

It is worthy of note that in all the mass of criticism and suggestion 
submitted to the committee there was no question of the wisdom of 
providing superannuation allowances for civil servants. On the con- 
trary, the policy was warmly indorsed by high and low, whether 
they argued for straight pensions or for a system of deductions. 

Doctor Farr said : 

Experience has shown that there are great advantages attending 
the present mode of remunerating public servants, partly by salaries, 
and partly by superannuation. * * * They are such as have led 
almost all the nations of Europe to adopt the system of paying partly 
by superannuation allowances. In the first place, it is a guarantee 
of fidelity; in the second place, it encourages efficient service; in 
the third place, it retains good men in the service; in the fourth 
place, it induces men to retire when they become old or inefficient 
from any cause; and in the fifth place, it prevents old pubHc 
servants from falling into a state of disgraceful dependence, or of 
distressing destitution, which would be a public scandal, and might 
deter young men from bexjoming candidates for office. These advan- 
tages appear to me to be so great that I should very much regret to 
see the system of superannuation abolished. ('^) 

Investigation Proved Deductions Inequitable and Inade- 
quate. 

The Select Committee having taken evidence for three months 
finally passed a resolution on May 20, that before coming to any deci- 
sion they would lay the evidence before Messrs. Ansell and Morgan, 
the actuaries, with instructions that they direct their attention to 
the two debatable points so clearly indicated by Doctor Farr: {^) 

Whether the system of superannuation pensions and deductions 
from salaries established by the Act of 1834 is founded on principles 
of fairness and equity, in a pecuniary point of view, with respect to 
civil servants whose salaries are liable to deductions? 

Or whether the deductions taken under this act are more than 
adequate to meet the charge under the act for this class of civil 
servants ? 

On June 16, the actuaries responded that they found the system 
not established on principles of pecuniary fairness and equity. Their 
conclusion was in exact agreement with that of Doctor Farr and the 
other actuaries who had expressed their views: {") 

We are of opinion that there is sufficient reason for believing that 
the present rates of deduction do press unequally on different per- 

o Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 180. 

b See page Gl. 
c See page 64. 



CiVIL-SERVICE EETIREMENT IN GREAT BRITAIN. 71 

sons in the civil service; so that, other things remaining the same, 
those who enter the service at early ages contribute relatively more 
than those who enter late in life. 

And further, that those who, starting with equally low rates of 
salary, but who subsequently rise to the highest salaries, and there- 
fore become entitled to a higher rate of superannuation, do contribute 
relatively less than those who, having entered on the same low rate 
of salary, are so placed in the service as to give them little prospect 
of advancing beyond comparatively low or moderate salaries. C'*) 

Like Doctor Farr, Messrs. Ansell and Morgan were unable to answer 
the second question without more information concerning the ages, 
salaries, and periods of service of the employees. They requested 
that elaborate data regarding the personnel of the service be pre- 
pared for their use. With great detail they explained their difficulty 
to the Select Committee in a letter from which the following extract 
is taken: 

In respect to the second question, of the great importance of 
which we are fully sensible, we regret to be obliged to state that we 
do not find in the papers or evidence, the data on which we should 
feel ourselves justified in answering it with a conviction that we had 
made a sufficiently near approximation to the truth ; and it is our 
duty to state, that before we can arrive at such a conclusion as we 
should desire, other and additional data must be laid before us. 

The subject on which we are called upon to form an opinion, and 
to state that opinion to the committee, we consider to be far too 
important to the public service, and to the individuals comprising 
the civil service, to permit us hastily to draw conclusions from what 
appear to our minds insufficient statements of facts. * * * 

We think, therefore, that before we can form any opinion upon 
which we could ourselves rely, we ought to be furnished with returns 
from several of the large and principal civil services of the country, 
showing, 

1st. A return of all the persons now employed in the civil service 
in their respective departments, stating the nature of their appoint- 
ments, their present ages, and present salaries. 

2nd. A return of all the persons who have really left the service 
from other causes than death or superannuation during the last 10 
years; the dates at which they respectively entered the service, and 
the dates at which they left it ; also, the salary of each at the time of 
entry and the subsequent additions made thereto, with the date of 
each addition. 

3rd. A return of all the persons who have been pensioned during 
the last 20 years; stating the dates of their entry into the service, the 
nature of their appointments, their salaries at the commencement, 
with the amount and date of each rise, the date of superannuation, 
and the amount of superannuation allowance. 

4th. A return of all those persons who were on the superannuated 
list at the time when Return No. 3 might commence; stating their 
ages at that time, and the dates of death of such persons as having 
been on that list have died, or such other details as would show the 

o Report OQ the Operation of the Superannuation Act. 1857. Appendix I, p. 4. 



72 CIVIL-SEEVIGE EETIREMENT IN GKEAT BRITAIN. 

rate of mortality which has prevailed amongst those who have been 
superannuated. 

With information of this character before us to a sufficient extent, 
we should be ready, satisfactorily to ourselves, to form a fair judg- 
ment on the second question submitted to us; * * * but we 
believe that delay must inevitably take place if we are to investigate 
the subject in a way satisfactory to our own minds. (^) 

This letter was written June 16, 1856. The four returns asked for 
were furnished by practically all the departments of the Government, 
and Messrs. Ansell and Morgan set to work. On March 19, 1858, 
they submitted their report, showing that the deductions made from 
the salaries of the civil servants under the authority of the Act of 
1834 were not adequate to meet the charge to which the public was 
liable under that act. Included in their report are fourteen tables 
covering a great variety of data concerning the 15,219 individuals 
comprising the British civil service. They had made "a most labo- 
rious arrangement of the facts communicated" to them and pre- 
sented ' ' many collateral results ' ' which they naturally thought would 
be matters of interest to the Superannuation Commission appointed 
to carry on the work begun by the Select Committee of 1856. 

Resolutions of the Select Committee. 

In the meantime, the Select Committee had agreed to certain reso- 
lutions, one condemning the principle of abatement of salaries, and 
one affirming the policy of a revision of salaries, with reference to the 
abatements. What they recommended therefore was not an absolute 
remission of abatements, but a qualified and conditional remission — 
that qualification and condition being that the salaries of the entire 
civil service should be revised with regard to the deduction. The 
resolution ran as follows: 

That in the opinion of this committee it is desirable to do away 
with the system by which a portion of the salaries of civil servants is 
deducted on account of superannuation allowances. 

That, as a condition of such deductions being done away with, the 
rates of payment in the various branches of the civil service shall, 
at the earliest possible period, be revised with a due regard to the 
amount of deductions remitted, as there is no ground for an indis- 
criminate augmentation of salaries, which would otherwise result 
from the change proposed; that the revision now referred to shall be 
made previous to the 1st of April, 1857, when the abatements shall 
cease. 

In consequence of this action of the committee, the Government 
brought in a bill, which was introduced by the Chancellor of the Ex- 
chequer, Sir G. Cornwallis Lewis, at the close of the session. This bill 
proposed to remove the deductions paid by the civil servants and also 

» Report on the Operation of the Superannuation Act. 1857. Appendix I, p. 4. 



CIVIL-SERVIOE RETIREMENT IN GREAT BRITAIN. Y3 

to reduce the salaries to the amount of the deduction remitted. The 
bill failed to meet with general approval, and owing partly to that 
cause and partl}^ to the advanced period of the session it was with- 
drawn. 

SUPERANNUATION COMMISSION, 1857. . * 

During the Parliamentary recess of 1857, following the failure of 
the Select Committee's bill, the Lords Commissioners of the Treasury 
proceeded to appoint a royal commission 'Ho investigate this impor- 
tant subject in all its branches." It appeared from this that the 
Government was not willing to attempt to force into legislation the 
recommendations of the parliamentary committee, but thought it 
wise to refer the matter to still another tribunal. 

Owing to the fact that it resulted in such important legislation, the 
report of this commission is worthy of special study. After reviewing 
the history of superannuation measures under the British Govern- 
ment, from the earliest times down to the passage of the Superannua- 
tion Act of 1834, the commission considered the inequalities and anom- 
alies under the existing law, noted the consequent dissatisfaction of 
the civil servants, and came to the conclusion that a new system of 
superannuation must be established. 

Commission's Reasons for Advocating a Superannuation 

System. 

There seems to have been no doubt in the minds of the commis- 
sioners that it was necessary for the good of the service to continue 
-the practice of retiring the superannuated on an allowance. The only 
question was as to what was the best system, and how the existing 
regulations would have to be altered in order to adapt them to the 
new system. Said they : 

The first question which presents itself with reference to this sub- 
ject is the expediency of providing superannuation allowances at all. 
It has sometimes been argued that the only duty of the Government 
is to offer due remuneration in the shape of salary for the services 
performed, and that it ought to be the business of the civil servant to 
make provision out of that salary for his own future wants or those 
of his family. Although this question must be considered as settled 
by the established practice of this country, and also as assumed by the 
appointment of the present commission, it may be convenient, with 
reference to our future course of argument, that we should state the 
grounds for the opinion which we hold upon it. Having regard to 
public interests alone, we think that there are ample reasons for main- 
taining a system of superannuation allowances. 

1st. It must be recollected that incapacity, caused by illness or 
other infirmity, may happen at any period of life, and is not a calamity 
for which it is easy to provide by means of insurance, as in the case of 
death ; and it must also be borne in mind that, with a view to the due 
performance of his duty, it is important that a civil servant should feel 



74 OIVIL-SEEVICE EETIREMENT IN GEEAT BEITAIN. 

himself in a safe and independent position, and that his mind should 
not be harassed or distressed by anxiety respecting his future con- 
dition. 

2nd. Supposing an assiduous and devoted pubHc servant, who has 
spent the best part of his hfe in the service of the State, to become 
suddenly incapacitated by disease or bodily infirmity, public opinion 
would not allow that such a man should be permitted to starve. 
Although the want of any provision may be attributable to his own 
improvidence, this would not be considered as exonerating the Gov- 
ernment from making some special provision for him. Sir J. Graham 
says, in his evidence before the Committee of 1856: "I have the 
strongest opinion that whether there were any deduction made or 
not, and whether there were any specific contract made by the State 
or not, cases of such extraordinary hardship would present themselves 
on the part of faithful servants, worn out in the public service, that 
the claim for pension upon retirement would be irresistible." Such 
cases might not infrequently occur, and an irregular and objection- 
able practice of making special provision for particular cases would 
thus be gradually introduced. There can be little doubt that it 
would be more for the interest of the service to establish, beforehand, 
general rules under which superannuations should be awarded; and 
it is also probable that this system would, in the long run, be found 
more economical, inasmuch as the prospect of a provision on retire- 
ment would be considered as a part of the remuneration for the serv- 
ices to be performed, and would be taken into account in regulating 
the amount of the salary. 

3rd. It is probable that, in many cases, the hardship of removing 
an estimable public servant without provision would be avoided by 
retaining him in the service after he had become incompetent to per- 
form his duties. This is, perhaps, the strongest argument in favor of 
a system of superannuation. It may be true that it is strictly the 
duty of heads of departments to remove from the service all public 
officers who have become, from any cause, incompetent fully to dis- 
charge their duties, without regard to their feelings or their future 
position; but experience has shown that this is a duty the perform- 
ance of which it is most difficult, if not impossible, to enforce; and as 
it is impracticable, by any regulations, to define beforehand at what 
stage of declining health or increasing bodily or mental infirmity 
incompetence begins, the result is that, in the absence of superannu- 
ations, inefficient persons are retained in the public service. * * * 
The injury caused to the service by the retention of inefficient officers 
might, no doubt, be in part corrected by increasing the numbers of the 
establishment beyond what would have been required had all the 
servants been effective; but it would be impossible to justify such an 
arrangement, and under such circumstances the public service would 
be a loser for want' of superannuation allowances, probably in actual 
money, and, at all events, in the less direct results. The evil conse- 
quences of retaining a single civil servant in an important post for 
which he has become incompetent can not be estimated in money, 
and may be much more than an equivalent for the expense of the 
superannuation of a whole department. For these reasons we are 
unhesitatingly of opinion that the pubhc interests will be best con- 
sulted by maintaining a system of superannuation allowances. (*^) 

o Eeport on the Operation of the Superannuation Act. 1857. pp. X, XI. 



civil-service retieement in great beitain. 75 

Commission's Objections to a Contributory Scheme. 

Having thus explained the grounds on which they thought it 
desirable to retain a system of granting superannuation allowances, 
they proceeded next to consider whether it was desirable to establish 
a fund for the purpose, to be supported by the contributions of the 
civil servants, and decided that it was not. Their reason for this 
decision was that experience had proved it difficult "to prescribe 
beforehand any scale of contribution which shall be so adjusted as to 
supply the requisite amount without material surplus or deficiency. 
If then, the fund should prove deficient," they argued, "such defi- 
ciency must be supplied from the public revenue, and no object will 
have been gained by carrying the compulsory contributions of the 
civil servants to a separate account. If, on the other hand, the fund 
should prove to be in excess, difficult questions must arise as to the 
equitable appropriation of the surplus." They were, therefore, dis- 
posed to agree with the legislature of 1834 in considering it inexpedient 
to establish a superannuation fund. 

Assuming that no such fund was to be created, the commission 
next considered whether the civil servants should be charged with 
deductions from their salaries on account of superannuations, and 
came to the conclusion that such a course was undesirable and that 
a system of "engaging public servants at a certain net amount of 
salary, with a conditional prospect of superannuation on certain 
terms," was simpler and more straightforward. They gave as one 
of the reasons for this conclusion the opinion that a system of deduc- 
tions "has an injurious effect in creating an erroneous impression as 
to the real nature of the transaction. The payment of a charge on 
the salary for the purpose of providing superannuations almost neces- 
sarily suggests the idea," said they, "of the existence of a fund to 
which each civil servant has contributed, and in which he, therefore, 
may be supposed to possess a certain right of property," and they 
were led to doubt whether the impression could be entirely removed, 
except by an alteration of the system. Their other objection to the 
system of deductions was the fact that it necessarily ' ' raised questions 
as to the sufficiency or insufficiency of the superannuation allowances 
considered as an equivalent for the deductions paid, and this not only 
with reference to the whole service, but with regard to particular 
departments, or even individual cases." In this connection, they 
noted the complaint of individuals compelled to pay deductions, 
although from special circumstances there was little or no chance of 
their ever deriving benefit from superannuations. In short, the great 
overwhelming impression which the commissioners received of the 
system which they were investigating was of the inequalities which 
the system of deductions as administered sanctioned in the remunera- 
tion of different classes of civil servants. 



76 civil-seevice retirement list great britain. 

Recommendation that Deductions from Salary be Abolished. 

They saw only two ways of removing these inequahties — either by 
reducing the advantages of the favored classes or by improving the 
condition of the others. Feeling reluctant to interfere with the posi- 
tion of those civil servants entitled to full superannuation without 
the payment of deductions, they recommended as the only alternative 
the abolition of deductions, thus increasing by that amount the 
incomes of the civil servants then paying deductions. They justified 
this recommendation with the statement that ''by such a measure 
the members of all the leading departments of the civil service would 
be placed on an equal footing as to salaries, inasmuch as all would 
alike receive, without abatement, the salaries which are stated to 
have been awarded to them on equal terms." 

Besides recommending the abolition of deductions, the commission 
recommended six other changes in the system of granting superan- 
nuation allowances. They were: 

(1) The adoption of a new scale of retired allowances. 

(2) The reduction of the age of voluntary retirement from the 
public service from 65 to 60. 

(3) Compulsory retirement from the service at 65 years of age, 
except in certain special cases. 

(4) The application of a more liberal scale of superannuation to 
certain officers requiring professional knowledge, and the power of 
applying a special scale to other individual cases where, on the first 
appointment, it might appear, for special reasons, to be proper. 

(5) The application of the ordinary rules of superannuation to 
various officers and departments which had previously been treated 
as exceptional cases, so as to secure, so far as might be practicable, a 
uniformity of system. 

(6) The power to award gratuities or pensions in certain cases to 
civil servants who might by reason of ill health or bodily injury be 
required to retire before they had become entitled to a retired allow- 
ance, and to regulate the amount of compensation to be awarded on 
the abolition of offices. 

The fifth recommendation applied to the Permanent Under Secre- 
taries of State, the Second Secretary of the Admiralty, and the Per- 
manent Secretary of the India Board, who were all treated by the 
Act of 1834 as political functionaries, although those offices were 
never held by members of Parliament and never vacated on a change 
of administration. The commission held that they should be placed 
under the rules of the ordinary civil service, giving them, of course, 
the benefit of an exceptional rate of superannuation, if on inquiry 
they should appear to fall within the principles laid down. With 
regard to the judicial officers (whose pensions were regulated by 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 77 

many different acts) the commission did not think it within their 
province to decide which of them should be placed under the provi- 
sions of the general superannuation act; but thought that in all 
cases in which it was deemed right to place them under the general 
act they should have the benefit of the exceptional rule recommended 
above. With regard to the inferior officers in the dockyards and 
victualing yards and to certam artificers in the arsenals, who had 
complained that they received their superannuation according to an 
antiquated scale considerably lower than that applied to the ordinary 
civil service, the commissioners held that there was no good reason 
for making any one department an exception from the general rule. 
To reform the anomalies in the Department of the General Post- 
Office, the commission recommended that the system of granting 
superannuation should be revised with a view to placing it on a 
more uniform principle. This recommendation applied also to the 
peculiar class of clerks employed in public offices under the name of 
extra clerks, although a portion of them at least had come to be 
permanently employed. The commission found that there was no 
good reason for pensioning them on a lower scale than the other 
clerks, assuming them to be permanently employed. 

Refusal of the Commission to Recommend an Insurance Fund. 

The petition of a large body of civil servants that compulsory con- 
tributions be required for the purpose of creating an insurance fund, 
to be managed by the civil service but under the general control of 
the Government, received very slight consideration from the com- 
mission. Confusing this request apparently with the idea of pen- 
sions for widows and children — a very different proposal — they dis- 
missed it in the following words : 

In some countries the provision made by the State for its servants 
has been carried still further, and has included their widows and 
children after their death. As a question has been raised in some 
of the niemorials of the civil servants as to the expediency of such 
an extension of the system, it may be right to notice the subject. It 
appears to us that none of the three reasons which have been stated 
in favor of superannuation allowances apply to the case of a provi- 
sion for widows and children. 

1st. It is true that many civil servants may feel an equal anxiety 
for the future welfare of their wives and children as for their own; 
but against the chance of premature death there is a certain and easy 
mode of providing by means of insurance; and it can not be doubted 
that those who would suffer from anxiety on this subject would be 
likely to have recourse to this means. 

2nd. It does not appear that in this country, at least, public opinion 
would require that the civil servant should be relieved from the duty 
of providing, by insurance or otherwise, for the future support of his 
family, and that this burden should be thrown upon the State. It is 



78 CIVIL-SEKVICE EETTKEMENT IN GREAT BEITAIN. 

true that sympathy has of late years been excited in favor of some 
claims for assistance made by the widows of deceased civil servants; 
but in these cases the applications were grounded, not upon a general 
claim for provision as widows of civil servants, but on the fact that 
their husbands had made large contributions under the name of 
deductions to a supposed fund, from which they had themselves 
received no benefit, and on which it was, therefore, supposed that 
their families might have an equitable claim. The third reason is, of 
course, inapplicable to the present case.(") 

Indifference of the Commission to Actuarial Phases of the 

Problem. 

This memorable report strikes the student of superannuation 
schemes as remarkable for two important omissions. It ignored 
absolutely all actuarial phases of the subject and it barely mentioned 
the interests of the British taxpayer. 

The most important recommendation— the abolition of deductions 
from salaries to meet the charges of superannuation — constituted a 
change of the whole system from a contributory to a noncontributory 
plan. It meant the establishment of a civil pension list similar to the 
military pension list. It meant that members of the civil service were 
to be retired thereafter out of the public revenues without cost to 
themselves. 

This momentous change was recommended by the commissioners 
because they saw the inequalities of the system in vogue, recognized 
the fact that the civil servants had just cause for complaint, and 
knew of no other remedy. Failing to perceive that fixed mathe- 
matical principles must underlie any sound superannuation scheme, 
and that if any given plan proves inequitable and unsatisfactory it is 
because it violates such principles, they came to the conclusion that 
the easiest and quickest way to cut what seemed to them a Gordian 
knot was to recommend a free, general pension for everybody in Her 
Majesty's permanent civil service. 

As previously explained, the eminent actuaries who had been 
engaged by the Select Parliamentary Committee to determine 
whether the deduction made under the Act of 1834 was adequate to 
meet the charges, had found it necessary, before they could answer 
this question, to make a thorough study of the whole civil service of the 
country, classifying the members according to age, length of service, 
average and aggregate salaries, and the amount of aggregate deduc- 
tion to which they would have been liable under the Act of 1834. 
From this mass of data they deduced some valuable tables. With 
these as a foundation it would have been entirely possible for them to 
work out a contributory plan of retirement based on scientific princi- 
ples, fair to the civil servant, fair to the taxpayer, and equitable as 

o Report on the Operation of the Superannuation Act. 1857. pp. XI, XII. 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. . 79 

between different classes of civil servants. Work similar to that done 
by Messrs. Ansell and Morgan with respect to the 15,219 individuals 
of the British civil service in 1856, who were contributing from 
their salaries, has recently been performed (in 1907) by Mr. Mor- 
ris Fox, the government actuary of New Zealand, with respect to 
the 5,593 individuals of the New Zealand civil service, and in 1906 
by the author of this report with respect to 103,030 individuals 
of the civil service of the United States, and again in 1908 with 
respect to 170,228 members of the service, including practically all 
those classified. The task of Mr. Fox and of the author was, in 
each case, more laborious than that accomplished by the British 
actuaries of 1856, because the former were required, in the one in- 
stance by the Public Accounts Committee of New Zealand's House 
of Representatives and in the other by the committees on civil serv- 
ice in the two houses of the American Congress, not only to make 
a classification of the members of the respective civil services as 
to age, salary, length of service, etc., but also to compute the cost 
of establishing a superannuation scheme based on sound actuarial 
principles and on the statistics of the given services. Had the British 
actuaries been asked to carry their work to its logical conclusion in 
similar fashion, they could undoubtedly, after their study of the serv- 
ice, have presented to the Government a superannuation scheme 
sound in principle and detail, and suited to the requirements of the 
British service, and with it a reliable calculation as to the possible 
maximum cost of putting it into operation. But the actuaries of 
Great Britain were entirely disregarded. Not even waiting to receive 
their report, and failing to perceive that the problem was a technical 
one capable of accurate and positive solution, the civil service super- 
annuation commissioners hastened to urge the abolition of the con- 
tributory system. The law establishing the pension system was 
passed before the actuaries had finished their report or before any 
one had had a chance to consider it. 

This haste of the commissioners to abolish the system of deductions 
seems all the more astonishing in view of the fact that a large number 
of the civil servants had gone on record as not averse to compulsory 
abatements from their salaries, provided those abatements were used 
to create an insurance fund — in other words, provided they were turned 
to the benefit of the contributor' s family in case of death. Doctor Farr, 
who had advised a general pension system in preference to the exist- 
ing contributory plan, had not asked for the complete abolition of 
deductions. He knew that that would not meet the needs of the 
situation. He had urged the straight pension only in connection 
with the diversion of deductions to the payment of insurance pre- 
miums. Through the half century that has elapsed since the Act of 
1859 was passed; the need of some provision in case of death before 



80 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

reaching pensionable age or just after has continued to be felt and 
to be dwelt upon. It has lately been officially recognized by passage 
of the Act of September 20, 1909. It seems strange, therefore, under 
all the circumstances, that the whole subject was not thrashed out 
with more thoroughness, with the help of the expert actuarial talent 
that was available at the time the momentous change was made. 

The indifference of the commissioners of 1857 to the actuarial 
phases of the problem is evidenced by various details in their report. 
They recommended, for instance, the adoption of a new scale of 
retired allowances, without making a single calculation as to the cost 
of such a change. They also recommended that the age of voluntary 
retirement be reduced from 65 to 60 years, without apparently con- 
sidering the enormous increase in the cost of annuities purchased at 
the earlier age, an increase caused by two counts, the greater number 
eligible at the age of 60 and the higher scale of values. 

Indifference of the Commission to Cost of Free Pension 

Scheme. 

The most obvious and fundamental objection to any universal 
pension scheme is that of the expense which it puts upon the people of 
the country. This well-known fact was noted by the commissioners, 
but did not deter them from recommending a general pension. Their 
discussion of that subject was confined to the following paragraph: 

The single, but not unimportant, objection to this solution of the 
difficulty is, the additional charge which it would impose on the public 
revenue. We are not disposed to treat lightly the pecuniary view 
of the question, and we are well aware of the reluctance which the 
Legislature must feel in imposing an additional burden on the public 
finances. {"') 

The commissioners appear to have made no attempt to calculate, 
or even estimate, the amount of that ''additional charge" which they 
recommended. Convinced, apparently, that a civil pension, payable 
out of the public treasury, was the only solution of the problem which 
was puzzling them, they seemed resolved not to "count the cost," 

REPEAL OF THE TWENTY-SEVENTH SECTION OF THE 
SUPERANNUATION ACT OF 1834, 1857. 

The report of the Superannuation Commission was submitted to 
the Treasury Lords on May 15, 1857. On June 30 Lord Naas in the 
House of Commons moved for leave to introduce a bill to repeal the 
twenty-seventh section of the Superannuation Act of 1834, which was 
the section providing for deductions from salaries. The bill met with 
opposition from the Government, but was finally passed by a large 
majority in both houses of Parliament. 

a Report on the Operation of the Superannuation Act. 1857. p. XXI, 



civil-service retirement in great britain. 81 

Bill for Repeal Introduced by Lord Naas. 

In the course of his speech asking for leave to introduce the meas- 
ure Lord Naas reviewed the history of superannuation measures in 
England down to the passage of the Act of 1834, and then proceeded 
to point out some of ''the inequalities and anomalies" of that act, 
such as the fact that "out of 56,740 employed in the civil service, 
at salaries amounting in the aggregate to £5,595,000, ($27,228,067) 
only 15,311 were subject to abatements; the other 41,429, whose 
salaries amounted to £3,172,000 ($15,436,538), were guaranteed their 
pensions, but suffered no abatements." In addition to these ine- 
qualities, he considered that there were three weighty objections to 
the whole system of the civil service: First, that the civil servants 
were not altogether sufficiently remunerated, the average pay being 
only £141 ($686) per annum, and of two-thirds of that number the 
average salaries amounted to but £86 ($418) per annum; second, 
that many of those who contributed to the fund did not get any 
benefit from it, the most delicate calculations of all the actuaries in 
the world not being able to persuade the six out of the seven who 
never received any allowance that they were fairly treated; and third, 
the fact that the amount of reduction was more than equal to the 
whole superannuation paid, the tax amounting to upward of £66,000 
($321,189) a year and the allowances paid to only about £11,000 
($53,531), and the entire contributions of the civil servants during 
the twenty-seven years the act had been in operation to £900,000 
($4,379,850), of which £80,000 ($3,893,200) only had been returned 
to the contributors in the shape of allowances, leaving a balance of 
£820,000 ($3,990,530), which if it had been funded would have 
amounted to £1,000,000 ($4,866,500). Lord Naas referred in terms 
of warm approval to the report of the Superannuation Commission, 
saying that, considering the high position and experience of the com- 
missioners, and the long time that the question had been debated, 
he was justified in looking at their decision in the light of an arbi- 
tration between the civil servants and the Government. On their 
decision he rested his whole case, and h& craved the attention of the 
House to this very important passage of their report (which is the 
one usually quoted wherever authority is sought for a sweeping 
condemnation of contributory systems, but which seems to the stu- 
dent only a frank confession of the commissioners' puzzled and 
bafiied consciousness). 

It has not been without much anxious consideration that we have 
arrived at the conclusion that it is our duty to recommend the aboli- 
tion of deductions for the purpose of superannuation, without any 
corresponding reduction in the salaries on which such deductions 
have been charged. Our first impression in entering on the inquiry 
referred to us was adverse to this arrangement; but on a careful 
review of all the difficulties of the case we became satisfied that, with 
a view to public interests alone, we could recommend no other set- 

35885— S. Doc. 290, 61-2 6* 



82 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

tlement of the question as likely to be permanent and satisfactory. 
We are aware that the present system of deductions has had high 
authorities in its favor, and at the time when it was introduced it 
may have been considered a convenient mode of carrying into effect 
the unpopular measure of a general reduction of salaries. Never- 
theless, for the reasons which we have already stated, we believe it 
to be unsound in principle; and we think that its inherent defects 
have developed themselves in difficulties of administration of which 
the effect has been to create a mass of anomalies and inconsistencies 
most injurious to the public service. In this as in other similar cases 
it may be found impracticable to escape from a vicious principle and 
to establish a reasonable and uniform system without some tempo- 
rary pecuniary sacrifice; but believing that there is no other satis- 
factory solution of the difhculty, being confident that the ultimate 
advantage of the public will be much more than a compensation for 
any possible temporary loss, and having regard to the importance 
of maintaining the character and efficiency of the civil service, we 
are of opinion that by the recommendation which we have made 
we shall best discharge the duty which has been assigned to us.(^) 

Lord Naas said, in conclusion, that he thought he had shown that 
there was a sufficient reason for the immediate abolition of the super- 
annuation tax, and as the Government declined to do anything in 
the matter, he called upon the House to support his bill. The remedy 
which he proposed was to introduce a bill containing but one clause, 
repealing the twenty-seventh section of the Act of 1834, wliich author- 
ized the deductions. This course, however, he said, would not pre- 
vent the Government from imposing such conditions as they might 
deem necessary. 

BILL OPPOSED BY THE MINISTRY. 

To the student of the subject it would seem that Lord Naas had 
given sufficient proof of the anomalies and inconsistencies of the law, 
but had hardly shown that the abolition of deductions was the cor- 
rect and only remedy for them. This failure of Lord Naas was 
pointed out by Sir. G. Cornwallis Lewis, the Chancellor of the Ex- 
chequer, who rose to the defense of the Government, saying: "The 
subject is too wide, the questions involved are too large, the civil 
service, whose interests are affected, is so important, and the sum of 
money which the noble lord proposes to vote away is too great to 
allow me to be silent on this occasion." After reviewmg the course 
of previous legislation he concentrated his arguments on the sensible 
plea that no piecemeal legislation should be enacted by the House, 
but that the subject should be considered, as a whole, in all its bear- 
ings, and action taken only after the actuaries' final report had been 
submitted and the subject thoroughly discussed in the light of that 
report. He said that : 

The question which now arises is whether the House shall at once 
proceed to repeal the clause in the Act of 1834 without any further 

oHansard's Parliamentary Debates, 3d series. CXLVI, pp. 690-698. 



CIVIL-SERVICE RETIEEMENT IN GREAT BEITAIN. 83 

legislation on the subject, merely upon the suggestion of the facts 
brought under their notice to-night. The noble lord did not state to 
the House that the recormnendations of the commissioners involved 
a great number of questions which do not belong strictly to the sub- 
ject of these abatements, and if he founds his case upon the report of 
the commissioners he is bound to give effect to the whole of their 
recommendations. * * * Another part of the question which 
must be considered is the great magnitude of the sum involved, and 
the importance of not taking a hasty step or legislating on imperfect 
information on account of the large pecuniary interests which are at 
stake. * * * I am perfectly willing to concede to the noble lord 
that the present system, under which superannuation allowances are 
granted, is full of anomalies and inconsistencies, and that the present 
rule with respect to the abatement is far from satisfactory. I can not 
admit, however, that the creation of a fund was ever promised, either 
by Parliament or by the Government ; neither can I admit that there 
has been any breach of a contract by any Government. The com- 
missioners themselves distinctly state their opinion that no such 
breach of contract has taken place, and that the civil servants have 
no claim on the ground of equity for the proposed change. The 
commissioners recommend the change on the ground of expediency. 
They say, "the system is a bad one; you must pay forfeit for the 
abolition of it; you can not get rid of it without surrendering £60,000 
($291,990) or £70,000 ($340,655) a year, and we think the system is 
so bad that we advise you to abandon it, even at that cost." I admit, 
then, that the system is a bad one, and I regret that it was ever intro- 
duced. * * * Looking, then, to the extensive consequences of 
the simple alteration of one clause which the noble lord proposes, and 
considering the necessity of legislating upon this subject — if it is to 
be legislated upon at all — in a more comprehensive manner and with 
a wider regard to consequences than is now proposed, it is not in my 
power to vote in favor of the motion of the noble lord. I would also 
say that I do not see how the Government would be justified in 
undertaking to do anything with regard to this question until the 
report of the actuaries has been received. The subject is now under 
the consideration of the actuaries, and the commissioners promise 
the result in a supplementary report. Under all the circumstances 
then, and looking at the position in which the question stands, I do 
not see how it would be possible for me to accede to the motion of the 
noble lord. It is for the House to say whether the question can be 
decided in this summary manner, and whether, as guardians of the 
public purse, considering the large sum of money involved in this 
motion, they think themselves justified in deciding in favor of it.^^) 

The Chancellor of the Exchequer assented to the introduction of the 
bill, however, on the understanding that the object of such concession 
was merely to give an opportunity for fuller discussion. The bill 
was accordingly read for the first time. 

On the motion for the second reading of the bill, on July 23, Mr. 
Wilson, then Secretary for the Treasury, stated the reasons for the 
Government's opposition to the bill. Taking up, first, the general 
belief that the contributions which the civil servants of the Crown 

"Hansard's Parliamentary Debates, 3d series. CXLVI, pp. 703-707. 



84 CIVIL-SEEVICE EETIREMENT IN GREAT BRITAIN. 

had made toward their pensions were considerably larger than neces- 
sary to provide for those pensions, he said that he was prepared to 
admit that if that case could be established, whatever the terms of 
the compact, it would be politic to abandon the charge or at least to 
reduce the charge to what was merely sufficient to provide the pen- 
sions. Repudiating the idea that there had been any breach of 
engagement on the part of the Crown with the civil servants, he next 
said that the whole question resolved itself into one of policy, and that 
it had been justly stated in the report of the commissioners that, 
after all, this was a question of the remuneration of public servants, 
and that the claim of pension could not be separated from the 
amount of salaries. Reviewing the salary question, Mr. Wilson 
argued that if there were injustices in the matter of remuneration 
paid different classes of employees, those injustices would only be 
increased by the general abolition of abatements from salaries. 
He said that: 

Although the insufficient remuneration of public servants might 
be a just ground for revising the scale of salaries, it could be no reason 
for an indiscriminate increase of salaries, without regard to merit 
or efficiency. The proposition of the noble lord would amount to 
an indiscriminate increase of salaries throughout the public service 
to the extent of 5 per cent upon salaries exceeding £100 and £2 10s. 
per cent on salaries below that amount. Now, supposing some por- 
tions of the public service were at present underpaid, an increase of 
2 J or 5 per cent upon the existing salaries might be quite insufficient 
to raise those salaries to a proper amount; and would it be any sat- 
isfaction to persons in such a position to receive this increase when 
the same increase was given to a large body of public servants who 
could not complain of being underpaid ? Some years ago a proposal 
was made to reduce the salaries in all public departments by a 
uniform rate of 10 per cent, and that proposal was opposed on the 
ground that if any portion of the public servants were overpaid it 
would be proper to reduce their salaries, but that the indiscriminate 
reduction proposed was neither just nor reasonable. * * * There 
was one point to which he begged to call the serious attention of the 
House. Until the noble lord introduced this bill no proposition had 
ever been made to give up the abatement unaccompanied by a revision 
of salary. («) 

Coming to consideration of the bill itself, Mr. Wilson attacked it 
as bound to create an anomaly greater than any which now existed. 
He showed that the commissioners had pointed out existing anomalies 
without end, with not one of which the bill proposed to deal. Said he : 

It proposed to repeal a single clause in the Act of 1834 — the clause, 
namely, which imposed the abatements. The noble lord left the 
act in every other respect as it was. Now, the effect of that act was 
that certain persons only were entitled to pensions. The bill of the 
noble lord sought to relieve these persons from the payment of abate- 
ments, but it did not propose to give pensions to any other class of 
public servants. The officers of the Poor-Law Board were not entitled 

oHansard's Parliamentary Debates, 3d series. CXLVII, pp. 249-253. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 85 

to pensions, and they felt that they had no reason to complain, 
because they were not required to pay abatements. The officers 
of the Treasury, on the other hand, were entitled to pensions, and 
therefore they had no right to consider themselves aggrieved in 
being called upon to pay abatements. Under the bill of the noble 
lord the officers of the Treasury would continue to be entitled to 
pensions, although relieved from the payment of abatements ; while 
the officers of the Poor-Law Board would not be more entitled to 
pensions than they were at the present moment. Nothing could be 
more unjust than such a distinction. If all public servants were to 
be put upon the same footing with regard to abatements, so ought 
they also with respect to pensions; and if the bill of the noble lord 
passed, it would be impossible to resist their demand. * * * 
That bill, if passed, would destroy the line of demarcation between 
those who were and those who were not entitled to pensions. It was 
proposed that they should then give up a sum of £100,000 ($486,650) 
without any discrimination, to public servants ; but he would answer 
for it that if that proposal were adopted they would have to add 
another sum of at least £250,000 ($1,216,625) for pensions to persons 
who were not at present entitled to receive them. He would go 
farther and express his belief that, under that proposed arrangement, 
they should look forward to an addition to the public expenditure 
of not less than from £300,000 ($1,459,950) to £400,000 ($1,946,600) 
in the course of the next eight or nine years. C^) 

Mr. Wilson closed his speech by declaring that the question was 
not between the civil servants and the Government, but between 
them and the taxpayers of Great Britain. He therefore hoped that 
if the House of Commons, judging between their constituents, the 
taxpayers, and the civil servants, should decide that the latter were 
inadequately paid and that therefore they were justified in throwing 
away £100,000 ($486,650) a year directly, besides some £300,000 
($1,459,950) or £400,000 ($1,946,600) a year indirectly, they would 
be equally willing, when they had forced the Government into a 
corner and it became necessary to propose new taxes for meeting 
that increased expenditure, to support the Government in adding to 
the income tax or imposing any new tax that might be required to 
equalize the expenditure and the means of the country. 

Debate on the Bill. 

At the close of Mr. Wilson's speech, Mr. Weguelin, who had been 
one of the commissioners who inquired into this subject, spoke in 
favor of the bill and against the arguments for delay urged by the 
Chancellor of the Exchequer and the Secretary for the Treasury. 
He said that: 

Another reason urged for delay was the non-presentation of the 
report of the actuaries. He could not understand why that should 
be urged as a reason. If the abatement had accumulated, and the 
Government admitted that a fund had been created, the case would 
be different. But if they said the clerks among themselves had no 
right to the principle of mutual assurance, he could not tell why they 

^Hansard's Parliamentary Debates, CXLVII, pp. 256-257. 



86 CIVIL-SEE VICE EETIKEMENT IN GEE AT BRITAIN". 

should wait for the report of the actuaries. The appointment of 
actuaries necessarily assumed that there was a fund — that the de- 
ductions paid by other classes had formed a fund out of which to pay 
the superannuations. They were then in this dilemma; either there 
was a fund, which was contrary to the statement of the honorable 
gentleman, or if not, then there was no occasion to wait for the report 
of the actuaries. He thought the real question for the House of 
Commons was, as to the policy of continuing these abatements. 
Everybody, when they came to examine the matter, abandoned 
them. The committee appointed to investigate the matter had 
thrown them over; the commissioners had given them up; every 
debate in the House had been conducted on the principle of the 
abandonment of the system of abatements, and the real question 
now before the House appeared to him to be, whether or not there 
ought to be an increase of salary on account of these deductions. 
That question of salary he admitted the House were incompetent to 
enter into ; it must be left to a committee of the Treasury. Judging 
from what he saw around him, he believed that salaries generally 
were on the increase. He knew they were in commercial concerns ; but 
with respect to that the right honorable gentleman made a statement 
which was not exactly in accordance with the fact. He stated that 
the average salaries at the Bank of England were lower than the 
average salaries paid to the civil servants. The general average, 
however, in the Bank was £195 ($948) per annum, whereas in the 
civil service it only amounted to £147 ($715). C^) 

The position of the Government was next defended by Sir Francis 
Baring. As one of those responsible for the passage of the Act of 
1834, he was naturally inclined to defend the system of deductions, 
but he nevertheless conceded that the question of deductions had 
been settled, the Government having yielded that principle. The 
real question, he maintained then, was not about deductions, but 
the second reading of the bill, and to that he had objections. Not 
only did he object to the bill because it would be no settlement of 
the question, but because it would make a large increase in the sala- 
ries of the public servants in a manner not required, and at the same 
time most injudicious. They were going to increase the higher serv- 
ices by 5 per cent, and to increase the salaries of the lower class of 
civil servants, by only 2^ per cent. The bill, therefore, gave advan- 
tage to the highest and best-paid class of public servants, which it 
withheld from the poorer and hardest-working servants. 

Mr. Seymour Fitzgerald, who had been a member of the Select 
Committee, defended Lord Naas's bill on the general ground that the 
civil servants had just cause for complaints, and that members of the 
House should be ready to face the extra expense for the sake of the 
extra advantage from the increased efficiency of the public service. 

An energetic speech against the bill was made by Mr. Rich, who 
said it was "imperfect in its form, would be unjust in its operation, 
was quite unnecessary, based upon erroneous statements, involved 

a Hansard's Parliamentary Debates, CXLVII, pp. 268-269. 



CIVIL-SERVICE EETIREMEiSTT IN GREAT BRITAIN. 87 

an extravagant expenditure of the public money and recognized a 
breach of contract." He said the question was not one of abate- 
ment, which had been inquired into and decided against; but it was 
a question whetlier £100,000 ($486,650) a year should be added to 
the salaries of the best paid of the public servants. 

Lord Naas next took up the debate, answering the attacks madf^ 
on his bill by the members of the Government. Particularly inter- 
esting to the student of retirement plans are his conclusions, based 
on the opinions of the several actuaries, who had testified that the 
average value of the pensions received was less in individual cases 
than what the contributions would have purchased. It has been 
shown that tliis opinion was perfectly sound, but it is also known 
(what Lord Naas was unwilling to wait to find out) that the actuaries 
then investigating the matter discovered that the contributions 
would be inadequate in the aggregate to pay the pensions promised. 
Lord Naas said that: 

The Secretary for the Treasury (Mr. Wilson), whose motives in 
opposing the bill no one could doubt were very proper, had, however, 
made some statements of facts and figures in a manner which tended 
to create a false impression. The honorable gentleman had stated that 
there was "an impression" abroad that the civil servants of the 
public were called upon to pay more in deductions than they received 
back in pensions. That was not "an impression;" it was a distinct 
matter of fact, and it could be proved beyond all dispute that the 
contributions of the civil servants far exceeded in amount the pen- 
sions that were granted to them. That matter ought to have been 
set at rest after the evidence which had been taken before the com- 
mittee which sat last year upon the subject. They examined Doctor 
Farr, Mr. Edmonds, and Mr. Hardy, actuaries of the highest emi- 
nence, and documents were produced showing that six other dis- 
tinguished actuaries agreed with them in an opinion that the average 
value of the pensions actually granted was considerably less than 
what should have been given in return for the contribution paid by 
the civil servant, even omitting all profits arising from resignations 
and discharges. It was true that an inquiry was going on, or was 
supposed to be going on, directed in some measure to that point; but 
the evidence before the House would lead them to believe that it was 
unlikely there would be an}'^ different conclusion arrived at than had 
been come to by the committee. 

Lord Naas closed his remarks with the argument that the system 
of abatements had been generally condemned and the House would 
do well to recognize that fact and act at once, rather than wait and 
allow the dissatisfaction of the civil servants to become intensified. 
He said that: 

Those who complained that the measure did not settle the whole 
question nor embrace the whole recommendations of the commis- 
sioners ought to bear in mind that their great leading recommendation 
was contained in his bill. If the bill did not sweep away all the 
anomalies and inequalities that existed, still it swept away the most 
grievous anomaly, and he believed it would pave the way for the 



88 CIVIL-SEEVICE RETIREMENT IH GREAT BRITAIN. 

abolition of all the others. But the question he had now to ask was, 
what did the Government propose to do ? * * * He wished to 
know from the right honorable gentleman the Chancellor of the 
Exchequer whether the Government meant to set their face once and 
for all against every attempt to do away with the abatements made 
for superannuation allowances ? His decided opinion was that they 
must make up their minds to do away with these abatements or not 
deal with the question at all; unless they made the principle of non- 
abatement the root of their measure it would be unsatisfactory to the 
civil servants, and, he believed, to the House and country. The 
system had been condemned by that House, by the press, and by 
the good sense of the people of this country. * * * j^ ]-^g^f| been 
condemned by a committee of that House, which had given long 
consideration to the subject; and lastly by a royal commission, 
whose report should be looked at more in the light of an arbitration 
than anything else. In fact, the whole system of taxing salaries 
stood condemned; and although there might be honorable members 
who thought the system just and proper, he trusted that with the 
weight of authority to which he had alluded to support them, the 
Government would put the matter on a satisfactory footing. The 
continuance of the existing system caused great dissatisfaction among 
a large and important body of public servants whom it was most 
desirable to keep contented. They felt they had a grievance to com- 
plain of, and the House might depend upon it they would not be 
satisfied till that grievance was removed. The agitation would go 
on, and they would not rest contented with less than was now pro- 
posed for the relief. Next year the demands of the civil servants 
instead of being lessened might be enlarged; and the House might 
find that it was not one grievance only they were called on to redress. 
We boasted in this country of the stability, the firmness, and the 
integrity with which the business of every department was conducted. 
These we owed very much to the exertions and abilities of the civil 
servants of the Crown, and when they were told by high authorities 
that this class labored under an oppressive grievance he maintained 
that the House ought to redress it at the earliest possible opportunity, 
and he trusted the House would, by accepting his bill, put an end to 
the grievance at once, and thus confer a boon and recognize a right. (**) 

One of the strongest speeches against the bill was made by Mr. 
Gladstone, who took exception particularly to Lord Naas's statement 
that the system of deductions was a condemned system, and who 
pointed out that the matter could not be cleared up before the report 
of the actuaries was received. Said he: 

It is stated or assumed that the system of making deductions from 
the salaries of the civil servants with a view to providing funds for 
superannuation is a system which has been condemned on all hands. 
It has been condemned, it is said, by a parliamentary committee, by 
the royal commission, and it is assumed to have been condemned 
by the Government. It was condemned, I am sorry to say, by the 
parliamentary committee — I greatly regret that such should liave 
been the case — it has been condemned by a royal commission, which 
I look iipon as being of less authority; whether it has been condemned 
by the Government or not I am not aware. But the system which at 

« Hansard's Parliamentary Debates, CXLVII, pp. 649-656. 



CIVIL-SEEVICE RETIREMENT IF GREAT BRITAIN. 89 

present exists was founded under recommendations entitled to quite as 
much weight as any of the recommendations which have been made 
in the opposite direction. 

Mr. Gladstone then quoted the opinions of such eminent men as 
Sir James Graham, Mr. Tierney, Mr. A. Baring, Lord Althorp, Mr. 
Herries, Mr. Gouldburn, and Sir Henry Parnell to prove that the 
policy of making deductions from a salary as an equivalent for a 
prospective superannuation is "sound in principle and in effect is 
excellent." He said that: 

They were men, most of them among the most experienced ad- 
ministrators of their day, and one or more of them had originally 
belonged to the permanent civil service. The weight of testimony, 
therefore, in favor of this system is sufficiently strong, not perhaps to 
induce you to maintain it under all circumstances, but at least en- 
tirely to deprive the noble lord of the right of saying that it is a 
condemned system. The noble lord and those who go with him 
argue that the pensions which are to be awarded out of the fund ac- 
cumulated by the deductions will not in the long run exhaust the 
whole proceeds of the fund. In the first place, that fact has never 
been proved, and if it had it would not affect the question. The 
noble lord quoted these opinions of certain actuaries, and he says 
that these opinions ought to settle the question; but the noble lord 
was very glad to fall back upon the royal commissioners as arbitra- 
tors when it suited the purposes of his argument. But the royal com- 
missioners do not state that this was a settled fact; on the contrary, 
in the last page of their report, they treat it as a matter not yet 
cleared up. The committee of last year did not treat it as a question 
which was decided. The right honorable gentleman the member for 
Portsmouth (Sir F. Baring), a great authority, is distinctly and 
strongly of opinion that the money value acquired in respect of pen- 
sions is greater than the money value paid in deductions. 

Believing thus, that there was a great weight of expert authority 
on the side of the system of deductions as against it, and that the 
matter was not yet settled, Mr. Gladstone opposed the bill chiefly on 
the ground that what it really proposed was an indiscriminate increase 
of salaries and that such increase was not justified. Said he : 

It is all very well to come down here and say with a chivalrous air 
that it is beneath the House of Commons to inquire what is the value 
of labor in the market — that we ought to be above such consideration 
in fixing the payments of our public servants. That would be all 
very well if we were dealing with our own private fortunes, but we 
happen to be dealing with the pubfic taxes. The bulk of these taxes 
are levied upon the wages of the laborers of England, which are regu- 
lated by supply and demand; and if the laborer, -whether artisan, 
mechanic, or peasant, can obtain no more than his labor is worth in 
open market, what right have we to make deductions from the fruit 
of his labor, and dehver them to servants of the Crown, according to 
our own ideas of generosity ? There is no doubt that the civil servant 
gets at least what his labor is worth in the market. Here let me draw 
a distinction. There is a labor so valuable that you can not pay for 



90 CIVIL-SERVICE BETIREMENT IN GREAT BRITAIN. 

it in money. There are men who devote themselves to the civil 
service with so much enthusiasm, with such ability, and with such an 
entire absence of the ordinary motives which a prospect of fame 
affords, that it is impossible to commend or to pay them too highly. 
Men of that order we must set aside. You may give them salaries 
which are liberal according to the estimate of the world, but I grant 
that such salaries, even in the present liberal humor of Parliament, 
must fall far short of the value of the services which these persons 
render. I am not here to discredit the civil service in general. At 
the same time I must say that, so far as my ex{)erience has gone, the 
civil servants of the Crown are not only not an ill-paid, but are, hav- 
ing reference to their great mass, a well-paid body of servants. Recol- 
lect what has happened within the last two years. There is no reason 
to suppose that the candidates presented for employment in the civil 
service during that period' have been inferior to those presented in 
previous years; but the establishment of the test of an independent 
examination has led to the rejection of one-third of them as unfit to 
enter the civil service of the country. At any rate, there is no doubt 
that these persons do not enter the civil service by compulsion. 
After Hstening to the debates in this House one would really suppose 
that the ballot, which has been abolished as regards the militia, had 
been established for the civil service; that every parish, every hun- 
dred, was called upon year by year to supply two or three young rnen 
for that service against their will ; and that the grievance of receiving 
only £141 per annum, taking tidewaiters and all together, was so 
great that there would be a market for substitutes, and that_ large 
payments would be made to induce persons to relieve the individuals 
chosen by ballot from this frightful evil. It would be needless to 
detain the House with a description of what is really the state of the 
case; but, while the quaUty of your candidates is improving, and 
their quantity undiminished, I want to know what will be our justifi- 
cation to the taxpaying constituencies, to the laboring classes of 
England, if we accede to the representation of the noble lord and pass 
a bill which, without reference to merit — on the contrary, with a 
decided preference of the higher classes of officers, to whom we are to 
make a double payment — will place a certain sum in the pocket of 
every civil servant. (") 

Mr. Disraeli made a speech in support of the bill, taking the stand 
that the principle of abolition of deductions in the salaries of a certain 
class of public servants had received the sanctions of three great 
authorities, a Parliamentary committee. Her Majesty's Government, 
and a royal commission, and should therefore be respected. He 
stated his agreement with Mr. Gladstone that, considering not only 
the present state of finances, but the gloomy future in prospect with 
regard to expenditure, it would be most unwise thoughtlessly to 
increase the expenditure of the country, but he said that "no one 
should refuse to perform an act of justice on considerations of mere 
economy." Mr. Disraeli, in conclusion, expressed his belief that the 
operation of the measure, if it became a law, would be "virtually to 
settle this important question." 

a Hansard's Parliamentary Debates, CXLVII, pp. 655-G65. 



CIVIL-SERVICE KETIEEMENT IN GREAT BRITAIN. 91 

In this debate on the motion for a second reading of the bill, the 
Chancellor of the Exchequer, Sir G. Cornwallis Lewis, again made an 
attempt to show the House that hasty action was inadvisable, since it 
had not yet been proved by competent authority (that is, by the 
actuaries) that the civil servants had been unjustly treated. Said he: 

The committee had a large amount of evidence brought under their 
consideration, and not being able to make up their mmds as to that 
which I may term the question whether the deductions which had 
been made from the salaries of the civil servants were or were not 
greater in value than the pensions to which they would become en- 
titled as an equivalent — resolved to refer the matter to two actu- 
aries, who were to be furnished with the whole evidence, and to report 
thereupon. The noble lord, the member for Cockermouth (Lord 
Naas), has indeed quoted the testimony of the actuaries who were ex- 
amined before the committee, to prove that its members were satis- 
fied with the information which had been laid before them; but I 
appeal to the recollection of those honorable gentlemen who were 
members of the committee to corroborate the statement which I have 
made, that the committee, not being satisfied with the evidence before 
them, came to a deliberate resolution to refer the question for the 
report of two actuaries specially selected, who were to be furnished 
with the evidence for that purpose. I therefore entirely dispute the 
statement that the Select Committee were satisfied upon the ground 
of equity and justice. The result of the investigation of the commit- 
tee was, in my opinion, to leave the question of insurance quite unde- 
termined, and I may add that their labors were brought to a close 
before the report of the two actuaries to whom the point had been 
submitted could be received. The claim of the civil service has, 
nevertheless, been reargued in this House upon the ground of justice 
* * *. Now, I utterly deny the validity of the claim of the civil 
servants upon that ground. * * * j maintain that the contract 
which was entered into with them by act of Parliament is, in its 
terms, perfectly clear and precise; that every one of them who has 
taken office since the passing of that act has accepted it upon condi- 
tions which were well known ; that those conditions have been strictly 
adhered to by successive governments; and that it is absolutely im- 
possible to prove that even if a fund had been created, any additional^ 
benefit to the members of the civil service would be the result. 

The Chancellor then went on to show the enormous additional ex-"' 
pense to which the country would be liable in case the bill passed and 
to combat the statement as to the general insufficiency of the salaries 
paid civil servants. In conclusion, the Chancellor said: 

This brings me to the last point which I have now to put before the 
House, namely, whether they are prepared to agree to the measure pro- 
posed by the noble lord, which involves the simple and unconditional 
abolition of the deductions now made from the pay of the civil service. ' 
I have already stated my opinion that the right of the civil service to such 
a concession can not be established ; and in the official position which I 
hold, I do notf eel myself j ustified in asking the House to be generous with 
the public money. If the House think fit to perform an act of liberahty 
and generosity, it is no doubt competent for the House so to act ; but it 



92 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

would ill beseem me, as Chancellor of the Exchequer, to propose any 
increase in the salaries of the civil service, except upon the g:round of 
justice, or of the insufficiency of tlie present scale of remuneration. 
No doubt it is perfectly competent for the House of Commons, if it 
think fit, in a spirit of "gratuitous liberality, to bestow upon the civil 
servants of the country this annual sum in addition to their existing 
salaries, and to diffuse the increase rateably over the whole service 
without any reference to individual merit, or to any augmentation in 
the amount of work performed. On the other hand, if the House is 
not disposed to take that step, they may accompany the remission 
of these abatements by the principle which was adopted by the com- 
mittee of hist session — that is to say, they may call on the Government 
to make ii rechiction in the salaries equivalent to the abatements re- 
mitted. In that manner either the whole or a considerable part of 
the (kxhictions to be abolished would be recovered in the shape of 
a diminution in the regular rate of pay. That, however, is a matter 
entirely for the House to consider. For my own part, standing in 
the situation which I have the honor to fill, 1 see no sufficient ground 
to justify me in acceding to the proposition of the noble lord.C") 

Vote on the Bill. 

Following the Chancellor's speech, the question was put and a 
division of the House resulted. The second reading of the bih was 
carried by a majority of 60 in a house of 282, all the members of the 
administration voting with the minority. 

On July 30 Mr. Seymour Fitzgerald asked the First Lord of the Treas- 
ury what course the Government proposed to pursue with reference 
to the civil service superannuation bill, the second reading of which 
had been carried the previous day by so large a majority. 

To this Viscount Palmerston replied that Her Majesty's Govern- 
ment felt it their duty to state to the House at considerable length 
the objections they felt to the bill proposed by Lord Naas, consider- 
ing that the effect of it would be to add a very large sum to the 
annual expenditure of the country, but the House having in a very full 
attendance and by a very considerable majority confirmed the second 
reading of the bill, the Government would not deem it respectful to the 
House to offer any further opposition to the progress of the measure. 

Mr. Gladstone then asked whether it was the intention of the Gov- 
ernment to institute any revision of the salaries of persons holding 
offices in the civil service in connection with the removal of the 
tleductions to which they were liable. In answer to this question. 
Viscount Palmerston stated that the effect of the bill would be to 
add 2^ per cent in some cases and 5 per cent in others to those sal- 
aries, but the only revision that would naturally arise out of it would 
be a revision bj^ which the salaries would be diminished in propor- 
tion to the alteration made by the bill, and that that woukl hardly 
be consistent with the decision of Parliament. 

^Hansard's Parliamentary Debates, CXLVII, pp. 673-682. 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 93 

When the motion for the third reading of the bill was put, the 
Chancellor of the Exchequer protested, for the last time, that he was 
not prepared to bring in a bill before he received the report of the 
actuaries who had been appointed, and he charged Lord Naas with 
undue impatience in trying to secure for the public servants "benefits 
to which in a spirit of good-natured credulity he considered them to 
be entitled." 

Sir John Trelawny then said the reason he had opposed the bill 
was because he wished to protect the national exchequer. The bet- 
ter plan, he thought, would have been to appoint a committee to 
inquire into the whole of the civil service. 

Mr. Berkeley said he was surprised to hear Lord Naas accused of 
good-natured credulity. The Government might more justly, he 
thought; be accused of ill-natured obstinacy. "Nine out of every 
ten men in cities," said he, "are in favor of the noble lord's bill." 

Finally, Mr. Ayrton said he must complain of the undue haste 
with which the bill had been pressed forward, and the extraordinary 
zeal which the civil servants had exhibited in soliciting members to 
support it. "The measure, in short" said he, "is the result of an 
organized conspiracy on the part of the public servants, is unjust in 
its provisions, and based on erroneous statements." 

The question was then put and the third reading of the bill was 
carried by a majority of 68. During the same session there were 
short debates in the House of Lords respecting the report of the 
royal commission, and it was very evident that the lords were almost 
unanimously in favor of the abolition of abatements. 

Text of the Kepeal. 

The act as finally passed was very short and read as follows: 

An act to repeal the twenty-seventh section of the superannuation 
act, 1834. 

Whereas an act was passed in the fourth and fifth years of the reign 
of his late Ma^'esty, intituled: "An act to alter, amend, and consolidate 
the laws for regulating the pensions, compensations, and allowances 
to be made to persons in respect of their having held civil offices in 
His Majesty's service;" and whereas it is expedient to enforce the 
provisions of the said act, so far as relates to the abatement to be 
made under the twenty-seventh section of the said recited act from 
the salaries of those civil servants of the Crown who have taken office 
since the 4th day of August, 1829; be it therefore enacted by the 
Queen's Most Excellent Majesty, by and with the advice and consent 
of the lords, spiritual and temporal, and Commons, in this present 
Parliament assembled and by the authority of the same, as follows : 

1. The said twenty-seventh section of the said recited act shall be, 
and the same is hereby, repealed from and after the 30th day of June, 
1857. 



94 civil-sekvice retirement in great britain. 

Analysis of the Vote. 

It will be seen from a study of these debates in Parliament that, 
while there was an overwhelming sentiment in favor of the abolition 
of deductions, the bill which effected it was not passed without en- 
countering the intelligent opposition of some of the most thoughtful 
men in the House of Commons. These included not only the mem- 
bers of the Government, but such a distinguished member of the 
Opposition as Mr. Gladstone. Without understanding the techni- 
calities of the superannuation problem any better, in all probability, 
than did those in favor of the bill, they yet took cognizance of the 
existence of such technicalities and seemed to feel that it would be 
only sensible and prudent to await the verdict of the men supposed 
to understand those technicalities who had been appointed to inves- 
tigate them before taking action in the matter. They realized that 
the subject of superannuation bears a close and inseparable rela- 
tionship to that of salaries and suspected that a just reform in one 
field could only be achieved through reform in the other. Although 
urged to remember that the commissioners of 1857 had recommended 
the abolition of deductions, '^ without any corresponding reduction 
in the salaries," they were also not disposed to forget that the par- 
liamentary committee of 1856 had recommended a revision of salaries 
as the condition on which the deductions should be abolished. Inas- 
much as the British public paid the salaries of its civil servants, they 
saw the importance to the public, as well as to the service, of consid- 
ering the whole subject thoroughly before enacting any legislation 
supposed to be remedial. 

Those who supported the bill were actuated by motives which 
were more of a credit to their hearts than to their heads. They saw 
the "anomalies and inequalities" of the existing law and hoped that 
by abolishing the system of deductions they could wipe out such 
objectionable conditions. They realized that such a course might 
be expensive for the State, but argued that the State, as a model 
employer, should not hesitate to do right by its employees merely 
because that action was expensive. The keynote of Lord Naas's 
argument was the cry that the civil servants labored under "an 
oppressive grievance" which, taken together with Mr. Berkeley's 
statement that "nine out of every ten men in cities were in favor of 
the noble lord's bill," showed that the people of the country sup- 
ported the bill because they believed that in so doing they were 
rendering an act of justice. Undoubtedly this high tone appealed 
".o many members of Parliament who failed completely to see that 
the problem was a technical one and was not to be solved by good 
intentions and generous resolutions. Then, too, many were weary of 
the agitation, and therefore inclined to think, like Mr. Disraeli, that 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 95 

it would be well to abolish the system of deductions, since they hoped 
by such action ''virtually to settle this important question." How 
little this hope has been realized is shown by the fact that the dis- 
content of the civil employees with the superannuation system has 
persisted down to the present year and has only recently been 
appeased by the passage of a law making such radical modifications 
in the system as to change the character of it completely from a 
so-called free pension system to a scheme virtually a contributory 
plan. Parliament's generous action in 1859 failed to "settle this 
important question" simply because the solution offered was unsound 
and unscientific and ignored certain fixed principles of human nature, 
as will be shown in subsequent chapters. 

SUPERANNUATION ACT OF 1859. 

Bill Embodied Minor Recommendations of Superannuation 

Commission. 

A bill to embody the minor recommendations of the Superannuation 
Commission was introduced into Parliament late in the session of 1858 
but was not pressed. A similar bill was accordingly introduced on 
February 7, 1859, by Mr. Benjamin Disraeli, then Chancellor of the 
Exchequer. In moving for leave to bring in the bill, the Chancellor 
said that the principal heads of difference between the proposed bill 
and the existinglaw were with regard to the duration of services and 
the time of superannuation. It was intended that superannuation 
should commence at the termination of ten years, and that the full 
superannuation allowance should be granted at the end of forty 
years' service. Under this bill every person in the civil service, of the 
age of sixty, would be permitted to receive his full superannuation, 
and at sixty-five retirement from the public service would be com- 
pulsory. The most important provisions of the bill, he said, were 
those which regulated the new scale of superannuation. One of the 
greatest defects of the existing system was that superannuation was 
fixed at the end of a septennial term of service and hence the same 
benefits were often enjoyed by persons who had really served very 
different terms. These defects were remedied by the proposed bill, 
superannuation being calculated by the yearly services of the public 
servants. The bill contained provisions regulating the superannua- 
tion to which professional men who entered the public service com- 
paratively late in life should be entitled. It also provided for the 
abolition of offices and other matters of an analogous character, which 
hitherto had not been satisfactorily settled; or if so, were arranged 
rather by the discretion of the Treasury than by the sanction of the 
law. 



96 CIVIL-SEKVICE EETIREMENT IN GREAT BRITAIN. 

At the conclusion of the Chancellor's remarks, Mr. Wilson said he 
did not rise to oppose the introduction of the bill, but he wished to 
remind the House that when Lord Naas had brought in a bill for the 
abolition of deductions two years before, he (Mr. Wilson) had called 
attention to one of the consequences which would follow from it — 
that its effects would be to do away with all distinctions between the 
public servants in regard to superannuation. Under the Act of 1834, 
no persons in the civil service had any legal claim to superannuation 
allowances, except they had submitted to the abatements provided 
for under that act, but if the enactment creating abatements was 
repealed, allowances could not be denied to any person in the public 
service. Having, however, been induced to take that step, Mr. Wilson 
held that it now only remained for the House "to do justice, and to 
allow the superannuation allowance to bear the same proportion to the 
salary, whether great or small, of every man in the public service." 

Mr. Rich, who had made a strong speech two years before, in oppo- 
sition to the bill abolishing the abatement system, allowed himself 
the satisfaction, on this occasion, of saying politely: "I told you so." 
He reminded the House that when the bill of Lord Naas was debated, 
it had been said that this was not merely a question of abatement, but 
that the House would be "pestered" by every pubhc servant for a 
pension. He said that they saw the beginning of that state of things 
now, for every public servant was claiming superannuation. He 
would throw out, for the consideration of the Chancellor of the 
Exchequer, that superannuation allowances represented a capital of 
£3,000,000 ($14,599,500). As the Government were changing their 
opinions on other points perhaps they would reinstate the abatement 
clause, which would furnish them with an answer to everyone asking 
for a pension. 

On the motion for the second reading of the bill. Sir H, Willoughby, 
who had previously declared himself to be ''one of those who took 
a fearful view of the increasing charge for superannuation allow- 
ances," declared his belief that the bill "would throw an enormous 
burden upon the country." He said that: 

The Government ought to inform the House what that superan- 
nuation would cost the country. In the shape of compensation and 
superannuation the country was at this moment paying £1,400,000 
($6,813,100), and if the whole civil service of the country was to be 
entitled to superannuation he would ask where was it to end ? Al- 
though the tax, which amounted to £70,000 ($340,655), had been 
abolished, there was nevertheless a new scale and state of things 
established. He objected to the form of the bill, and to that bit-by- 
bit legislation it proposed, for in dealing with the question of super- 
annuation they ought to deal with it as a whole. (") 

a Hansard's Parliamentary Debates. 3rd series. Vol. CLII, p. 592. 



civil-sekvice eetikement in gkeat bkitain. 97 

Bill Introduced and Defended by the Government. 

Sir Stafford Northcote, then Secretary for the Treasury, next 
defended the bill as a Government measure, saying that it was "the 
wish of the Government that the bill should accomplish that which 
it was principally intended to accomplish, namely, the putting all 
classes of the civil service on one uniform footing, as well as putting 
an end to these anomalies that had at present, and for a long time, 
existed in the system of superannuation." He also reminded the 
House very justly that, with regard to the additional expense which 
this bill would throw upon the country by taking off abatements, 
the Government had to consider not what were the recommendations 
of the select committee or the royal commission, but what was the 
act of that House. He said that: 

This question should not be looked upon as a mere question of 
pounds, shillings, and pence, as the honorable Baronet had put it. 
For what was the object of the superannuation system? Its object 
was to get good men for the civil service at moderate prices, to keep 
them as long as their services were valuable to the country, and to 
provide for their retirement when their services were not sufficiently 
valuable to the country. If that system were to be continued it 
must be clear, intelligible, and uniform, because if you had a system 
by which people, when appointed were uncertain as to whether they 
would receive superannuation, you could not, on the one hand, 
when you engaged them, get the benefit of the system by engaging 
them at moderate salaries, nor could you, on the other, from consid- 
erations of humanity, dispense with their services just at the time 
when they began to be of less value to the country than when they 
were engaged. The last great settlement of the superannuation 
question was in 1834, but in that settlement there were several 
blemishes. One was that the superannuation was confined to a 
certain number of offices named in a schedule to the act. A great 
number of offices, however, had grown up since the Act of 1834, 
which did not come within the scope of its provisions. The persons 
holding those offices were not subject to abatements, but they got 
pensions, though on a very irregular and unsatisfactory system. For 
instance, the officers of the Poor-Law Board, and some others, were 
paid off, not on any established system, but in an irregular manner. 
One of the objects of this bill was to put an end to the scheduling of 
offices, and to make the superannuation apply to the whole civil 
service. With regard to the additional expense consequent upon 
introducing all those other classes of persons, he thought the honorable 
Baronet formed an exaggerated opinion of it. Although it was 
perfectly true there was a large number of persons interested in the 
passing of this bill, it was to a great extent because they desired 
certainty and something like a fixed system that they were so inter- 
ested. The great class who would probably be brought within the 
superannuation provision, in addition to those who were now included, 
would be persons employed in country Post-Offices. He could not at 
that moment give an exact estimate of the number of that class of 
35885— S. Doc. 290, 61-2 7* 



98 CIVIL-SEEVICE KETIREMENT IN GEEAT BRITAIN. 

persons; but the Postmaster General and the authorities in the Post 
Office had represented that the department suffered seriously by not 
having a proper system of superannuation and retirement, and by not 
being able to get rid of persons who were past service. The measure, 
therefore, if the House looked at it in a broad light, was one for the 
improvement of the civil service generally, and he believed it to be 
one of true econom}^. It was one of a series of measures which the 
present and the late Government had been taking for some time past 
for improving generally, and so economizing the civil service. C^) 

On March 18 Sir Stafford Northcote moved that the House resolve 
itself into a committee on the bill, and in making the motion con- 
tinued his defense of the bill. In this speech he laid emphasis on the 
desire of the Government to treat all members of the civil service 
uniformly and equitably, something that had never been accom- 
plished under the Act of 1834. He said the bill would apply only to 
persons who were permanently employed in the service in such 
capacities as rendered it necessary for them to give up all other busi- 
ness and devote themselves wholly to the service of the State, thus 
excluding country postmasters who were also the keepers of shops. 
Another condition necessary to entitle persons to such allowances 
was that they should be paid out of Imperial funds; and therefore 
all persons paid out of county rates — such as prison, workhouse, and 
other poor law officers — would be excluded from the benefit of the 
act. Neither would the bill apply to persons who were paid by fees. 
Such persons were not entitled to superannuation, because the prin- 
ciple upon which that system rested was that in fixing a man's remun- 
eration how much he ought to have by way of salary was considered 
and how much by way of retiring allowance; and the difficulty with 
regard to persons paid by fees was that, although they were employed 
in the service of the State and were to a considerable extent under its 
control, they generally held their offices partly at the will of other 
persons and might be dismissed by them. 

Discussing the important subject as to what increase of expense 
would be caused by the provisions of this bill Sir Stafford lamented 
that ''that must be so much a matter of conjecture that he felt it 
quite impossible to make any satisfactory statement with regard to 
it." He said that there were three ways in which the expense of 
superannuations would be affected by the passing of the bill. In the 
first place there was the adoption of the new scale. The existing 
scale was what was called a "jumping" one; it went by periods of 
seven years. That provided by the proposed bill was a "sliding" 
scale, advancing year by year by sixtieths. It stopped at the same 
maximum as the existing scale, namely two-thirds, or forty-sixtieths 
of the salary; but under it a man would arrive somewhat earlier at 
his maximum allowance than he did at present. The scale was, 

o Hansard's Parliamentary Debates, CLII, pp. 592-595, 



CIVIL-SERVICE EETIKEMENT IN GEEAT BRITAIN. 99 

however, so arranged that while it gave an advantage to those who 
had served long periods, it diminished the allowances of those who 
had been engaged in the service of the State for shorter ones. In 
order, therefore, to determine how much the expense of superannua- 
tions would be increased by the bill, it was necessary to calculate after 
what periods of service civil servants were likely to retire. Another 
way in which the bill might add to the expense of superannuation, 
Sir Stafford said, was by bringing new classes of officers under the 
provisions of the act. There again, however, he found it exceed- 
ingly difficult to come to any kind of conclusion. Upon being asked 
what classes and what number of officers would be brought under the 
bill, the different departments replied by inquiring to what classes 
the bill was intended to apply, and a difficulty arose as to who were 
and who were not to be included under the term ''permanent civil 
servants of the State." A third way in which the bill would to some 
small extent add to the expense, Sir Stafford said, was by adding to 
the number of civil servants entitled to superannuation. One of the 
clauses gave permission to officers to retire at the age of 60, and 
another made it compulsory so to retire at the age of 65, unless they 
were specially asked to stay as being efficient servants. Upon inquir- 
ing at the different departments what number of officers would be 
required to resign on account of age he was met by the same kind of 
counterquestion instead of answer — namely, what classes of persons 
were intended to come under the provisions of the bill. The result 
of all their inquiries had convinced the Government of the necessity 
of limiting the operation of the bill and of laying down some more 
stringent rule than was afforded by the words "permanent civil serv- 
ice of the state. " He therefore intended to move the insertion of a 
clause, stating who were to be deemed civil servants. No person 
was to be deemed a civil servant unless he either held his appoint- 
ment directly from the Crown or was admitted with a certificate from 
the Civil Service Commissioners. He said that: 

The question of obtaining a certificate from the commissioners 
was distinct from, though connected in some degree with, that of 
open competition, because the system was applicable to all kinds of 
admissions, and included not only literary, but what were equally 
important, medical examinations. He believed, for his own part, 
that by adopting a system which seemed calculated not only to 
procure able and efficient officers, but to ensure them fair and 
equitable treatment, the House would do much to allay the present 
uncomfortable and excited state of the civil servants and to perma- 
nently improve the condition of the civil service itself ; and although 
his statement with respect to the possible expense of the proposed scale 
of superannuation might appear unsatisfactory to some honorable 
members, he would entreat the House to look at this subject in a 
broader point of view. What the country really wanted was not to 
save so many pounds, shillings, and pence in the superannuation of 



100 CIVIL-SEEVICE EETIREMENT IN GEEAT BEITAIN. 

its civil servants, but an adequate supply of good, cheerful, and 
willing servants, and the adoption of measures which would enable 
those m its employment to retire at the proper time without a feeling 
of hardship. (") 

Debate on the Bill. 

As soon as Sir Stafford had taken his seat, Sir Henry Willoughby 
renewed his previously expressed objection to the bill, ''an objection 
grounded upon the total ignorance in which the House was as to the 
increase of expense the bill would cause." He said that — 

This speech of the honorable baronet, clear as it was in other 
respects, was rather obscure as to the question of what would be the 
additional expense that would fall on the public by the passing of 
this bill, and this was a very serious question. The amount paid 
already yearly for ]icnsions and superannuations was enormous — it 
amounted to a million and a half. As an approximation toward 
it, he would take the civil-service salaries at £5,339,000 ($25,982,243), 
and he inferred that the charge with regard to that sum imposed by 
the bill would be £1,122,000 ($5,460,213) for superannuations. Add 
to that the £74,000 ($360,121) lost by abolishing the deductions from 
the salaries and' the compensations consequent on the abolition of 
the ecclesiastical courts, and other compensations amounting toward 
£1,500,000 ($7,299,750). The select committee who sat on this 
question had recommended the repeal of such portions of existing 
acts as provided for reductions from the salaries of the civil servants 
to form the superannuation fund, but they also recommended a revi- 
sion of the salaries. The point he desired to impress on the House 
was this: Let the civil servants have the benefit of it, but let the 
House not increase the scale of superannuation. His object was to 
do justice to the civil service and certainly at the same time to the 
taxpayers. He said, therefore, by all means give them the advantage 
of a repeal of the tax, but adhere to the scale of 1834. He did not 
mean to argue for the infallibility of that scale, and if the jump 
every seven years were unwise, let it be altered. Let them not, 
however, increase the scale of superannuation. C*) 

Mr. Gladstone next took up the debate, saying that he did not 
propose to enter at any length into a discussion of the bill, but he 
thouglit that his honorable friend, the Secretary for the Treasury, had 
made a large demand on the House when, as financial secretaiy, he 
exhorted them to take a broad view in this matter, and to enact a 
system of pensions on a new basis, without knowing what classes 
were to be included within the provisions of the measure, and with- 
out being aware of the extent of the burden about to be added to 
the already heavy burdens on the public finances. He further 
warned his hearers that this was a subject upon which it was emi- 
nently necessary the House should have full knowledge of that which 
they were about to do, because they were not enacting to-day that 
which would take effect to-morrow, and of which to-morrow would 

a Hansard's Parliamentary Debates, Vol. CLIII, p. 360. 
b Idem, pp. 362-363. 



CTVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 101 

give experience for correction the day after. They were enacting 
now that which would not take full effect for the next forty or fifty 
years, and they were now entering into a new set of engagements, 
every one of wliich, even if it reached over half a century or more, 
must be kept absolutely sacred, however onerous might be the con- 
sequences. Mr. Gladstone next protested that the passage of the 
bill abolishing deductions had been accomplished on the understand- 
ing that salaries were later to be reduced correspondingly, but 
instead of doing that the Government was now proposing to still 
further augment salaries ''entirely irrespective of the particular 
merits, duties, or features of the different cases." He said that — 

When this c[uestion was examined and it was first decided by a 
committee of that House that it was desirable to remit the deductions 
which had been levied under act of Parliament from the salaries of 
the civil servants, the committee recommended that the salaries 
of civil servants should undergo a revision generally corresponding 
to the deductions, and only a few years previously the House had 
been almost upon the point of adopting a vote for a general diminu- 
tion of the salaries of civil servants, entirely irrespective of any 
relief they were to receive by a revision of these deductions, but the 
deductions having been remitted the revision of salaries appeared to 
have been forgotten. He did not make any charge against anyone, 
and he was perhaps wrong in saying it had been forgotten, for he 
hoped it was still intended to carry that process into effect. But it 
might be said that the civil servants were very insufficiently and 
illiberally paid. But his honorable friend had said that at this very 
hour, when the House was determining to remit these deductions, 
the Civil Service Commission were showing by the result of their 
examinations that the system of admission to the civil service had 
been extremely lax, and that no inconsiderable number of persons 
had been allowed to hold offices and to receive salaries for the dis- 
charge of duties to which they were incompetent. Upon that 
ground, therefore, as well as upon others, he submitted that there 
was no case of injustice on the part of the civil service as a body. It 
could not be alleged, with the slightest color of truth, that that service 
as a body was underpaid. Everything that the public had con- 
tracted to do for them had been rigorously and faithfully performed, 
and he asked, therefore, whether it was just to the people of England 
that wholesale, without the slightest respect either to the merits of 
individuals or classes, or to the relations between the salary and the 
duty to be discharged, the House should proceed to remit the form 
of deductions and to add in that manner to the public burdens, 
while at the same time it entirely ignored the corresponding recom- 
mendation of its committee that with reference to this deduction a 
revision of the salaries should take place ? He hoped to hear from 
the Government, first, some declaration as to the manner in which it 
was intended to proceed with regard to the classes of persons who 
ought to be included within the provisions of the act; secondly, some 
promise that before the bill was read a third time an estimate should 
be framed of the addition which was likely to accrue to the public 
expenditure; and, thirdly, a statement whether it was intended that 
the remission of the reduction should be followed by a reconsideration 



102 CIVIL-SEEVICE BETIEEMENT IN GEEAT BEITAIN. 

of the rates of salary, or whether, on the other hand, it was meant 
that that remission of deductions should stand as a simple, sweeping, 
wholesale augmentation of the salaries of the civil service, entirely 
irrespective of the particular merits, duties, or features of the differ- 
ent cases. (") 

Mr. Wilson then told the House that, two years before, when it had 
been his duty to bring to the consideration of the House an estimate 
of ^ what the results of a fair superannuation measure would be, he 
had stated that the ultimate additional cost that would be entailed 
upon the country by the proposed measure would be about £100,000 
($486,650) for the remission of abatements, and another £100,000 
for the creation of additional pensions. He did not understand that 
the present bill proposed any additional scale for superannuation. 
The result of the bill would be merely to give effect to the practice 
which had prevailed, in awarding pensions under former acts, of 
apportioning the pensions to the exact number of years of service. 
His advice to the House was to settle the question "upon a broad 
principle, which everyone could understand, and which would be 
just to all." He believed that the best way to promote content 
would be to establish uniformity, and he did not believe that the 
operation of the bill would add more than 12 or 13 per cent on 
that which was now paid, or increase the charge more than £100,000 
($486,650). 

Sir Francis Baring said that he had opposed the motion of Lord 
Naas for getting rid of the old system of making deductions from 
the salaries of public servants, and he did his best to persuade the 
House that it would be unwise and most expensive to adopt that 
step. The House, however, contrary to the opinion of the Govern- 
ment of the day and the committee, was pleased to get rid of the 
system. The only question, then, was how much they had to pay. 
By the old scale a discretion was allowed to the Treasury within 
certain limits to give the good servants a larger, and the indifferent 
servant a smaller superannuation. By the present system that dis- 
cretion was a good deal removed, and upon the whole he preferred 
the new plan to the old. He entreated the House most earnestly 
to settle the question, saying that whatever it did, it could not do 
worse than leave the matter unsettled. It had only two courses 
open to it, either to revert to the old system or go on. It could not 
revert to the old system, and so its only course was to go on "even 
though it might have to pay somewhat dearly for its whistle." 

Sir George Lewis said he was ready to accept the consequences of 
the decision that the abatements should be abolished, and that the 
distinction which the payment of those abatements previously made 
between the class of public servants entitled to superannuation al- 
lowances by reason of their being subject to such abatements and the 

oHansard's Parliamentary Debates, Vol. CLIII, pp. 366-367. 



ClVlL-SERVICE KETIEEMENT IN GEEAT BRITAIN. 103 

class of officers not entitled to superannuation allowances by reason 
of not being subject to such deductions should be done away with. 
But he was not prepared to go beyond that principle. He could see 
no reason for an increase in the scale of superannuations. 

The Chancellor of the Exchequer closed the debate. He contended 
that the increase in cost of superannuations under the bill would be 
slight and due to no increase in salaries but to the fact that the scale 
had been framed to obtained the annual progression which was 
considered desirable. He said that in urging the bill the Govern- 
ment had established a principle which would guide it in the man- 
agement of all cases, namely, that those who received the privilege 
of superannuation shall pass under the examination of the Civil Serv- 
ice Commission. He then answered Mr. Gladstone as follows : 

The right honorable member for the University of Oxford (Mr. 
Gladstone) has said that before this discussion terminates he expects 
from the Government information on three points — first, the class of 
persons whom we propose to bring under this act ; secondly, whether 
we intend to revise the public salaries; and thirdly, he wishes to have 
an estimate of what will be the increase of charge if this bill passes. 
With regard to the first point — the class of persons who will come 
under this act — I will say at once that all those who are included in 
the original schedule of the existing act, all added since, such as Poor 
Law Commissioners and others, and all those who have become 
entitled to be added, will come under the provisions of this act, also 
those classes mentioned in this debate — namely, those employed in 
the dockyards and the Post-Office. As to the second point, whether 
it is the intention of Government to institute a revision of the salaries, 
I would beg to refer to the opinion given on that subject by the royal 
commissioners. The royal commissioners were of opinion that such 
revision would be impracticable, and they gave their reason for their 
conclusions. Our opinion agrees with that of the royal commissioners, 
and we do not think that it is expedient, taking a general view of all 
the circumstances connected with the question, that a general revision 
of the salaries should take place. I need hardly touch upon the third 
point, the increase of the amount of charge if the bill passes — because 
the honorable member for Devonport (Mr. Wilson) has given his 
opinion to the House, an opinion founded on experience, and entitled 
to be regarded as of authority on this point. I would say that I 
believe the estimate of the honorable gentlemen is well founded ; but 
I believe the expenditure would be rather under that figure than not. 
And if that is the case, can the House hesitate to pass a bill of this 
kind, which I think is founded on principles of policy and justice, 
which has been recommended, and fairly recommended, by the 
public, and which after a long discussion appears to receive the 
approbation of the House. C^) 

On the third reading of the bill, there was no debate, but Sir Henry 
Willoughby asked the Government for an estimate of the expense 
which its provisions would entail on the country. 

aHansard's Parliamentary Debates, Vol. CLIII, pp. 374-375. 



104 CIVIL-SEKVICE EETIREMENT IN GREAT BRITAIN. 

Sir Stafford Northcote stated in reply that the increase of expendi- 
ture consequent upon the passing of the bill might possibly be 
£70,000 ($340,655) a year at the utmost, taking into account the 
additions to be made by taking in a new class of officers, and the 
possible effect of an alteration in the scale. 

Sir Denham Norreys thereupon said he considered this was one of 
the most improper and uncalled-for bills the House had ever passed. 
It was founded on a promise of a revision of salaries, but that revision 
had never been and probably never would be carried out; and yet 
the bill would inflict a burden of £70,000 ($340,655) upon the 
country. 

Mr. Drummond also said the bill was a most improper one, both in 
principle and detail. If it were just in principle, which he denied, 
every banker and merchant ought to provide superannuation allow- 
ances for his clerks and every private person for his servants. 

Mr. Weguelin said that, as one of the commissioners who had 
originally investigated this subject, he was desirous of expressing his 
belief that the bill contained the only practical conclusion that could 
be come to upon it. The revision of salaries referred to could only be 
prospective, as it was almost impossible to reduce the salaries of 
existing officers. The bill might throw an additional charge upon the 
revenue for the present, but ultimately it would result in a saving to 
the country. 

The bill was then read for the third time in the House of Commons 
and passed. Unfortunately, the most valuable recommendation of 
the Superannuation Commissioners, the recommendation to render 
retirement compulsory at the age of sixty-five, did not meet with the 
approval of the House and that provision was expunged from the 
act in committee. Undoubtedly the effort of the Government to 
obtain uniformity in the treatment of all civil servants was praise- 
worthy, and to that extent the Act of 1859 was an improvement over 
the Act of 1834. 

Main Features of the Act. 

The chief recommendations of the Civil-Service Superannuation 
Commission of 1857 were accordingly embodied in the superannua- 
tion act which became a law April 19, 1859. The act practically 
repealed the Act of 1834, only two provisions of that law being opera- 
tive since then. Those are Section XII, which regulates the salary 
upon which a pension is to be calculated as the average for three years 
preceding retirement, and Section XX, which provides that the total 
receipts for pension and salary combined of an employee recalled 
to the service after retirement shall not exceed the amount of his 
former salary. (") 

o See Sections XII and XX, Act of 1834. Appendix I. 



CIVIL.-SEEVICE RETIEEMENT IN GEEAT BEITAIN, 105 

Under the Act of 1859 it became necessary in order to qualify 
for a pension — 

(1) That a civil servant should have been admitted to the service 
with a certificate, unless appointed directly by the Crown or placed 
under the professional section of the act. 

(2) That he should have given his whole time to the public service. 

(3) That he should draw the emoluments of his office from public 
funds exclusively. 

(4) That he should be certified to have served with diligence and 
fidelity to the head of his department, else the full amount of pension 
may not be awarded. 

(5) That he should have served for not less than ten years, unless 
in the case of abolition of office. 

(6) That if under the age of 60 he should be certified to be per- 
manently incapable, from infirmity of body or mind, of discharging 
his official duties, or his place must have been abolished. 

On qualification for retirement under the six general conditions 
explained above a civil servant became entitled to a pension calcu- 
lated at one-sixtieth of his retiring salary for each year of service, 
subject to a maximum of forty-sixtieths. The pension was calcu- 
lated upon the average of his emoluments during the last three years. 

A free and universal pension for all members of the permanent 
civil service having been inaugurated by the Act of 1859, it would 
seem that all those who had the good fortune to be among those 
thus "established" might have been satisfied. Such, however, was 
not the case. Mutterings of discontent soon began to be heard. 
On the one hand were heard the criticisms of the public generally 
as to the growing cost of the system, and on the other hand the 
complaint of the beneficiaries that the system made no provision 
for the dependents of civil servants and that various bodies of 
employees not classified as members of the permanent service were 
excluded from the benefits of the act. 

SELECT COMMITTEE OF 1873. 

In 1873 a select committee was appointed by Parliament to inquire 
whether any reductions could be effected in the expenditure for civil 
services. The system of pensions or superannuation received some 
attention from this committee. The witnesses examined, who were 
high officials of State, testified without exception to the public 
value of a superannuation system as increasing both efficiency 
and economy in the service. The opinion of any two or three 
of them may be taken as representative of all. Sir Thomas Fre- 
mantle, who was chairman of the Board of Customs at the time, and 



106 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

who had previously been Secretary for Ireland, Secretary at War, and 
twice Secretary to the Treasury, so that he had had a very large offi- 
cial experience for many years, was asked if he was satisfied that 
every member of the civil service should be pensioned. 

''Indeed I am," he answered, "I should be very sorry to interfere 
with the scheme of superannuation. 
' "For the work of the establishments?" queried the chairman. 

"For those who are on the permanent establishment." 

"You do not think that the country would get as good service 
unless that prospect of pension was held?" 

"I think not, and in one respect the country would get very much 
worse service, because in the case of an officer who is nearly worn 
out and unable to do his work in a satisfactory manner, it is really 
essential for the transaction of the business of the establishment that 
that man should be removed; and if we are able to say 'you are 
entitled to superannuation,' we can put pressure upon him and get 
rid of him, but if he had no superannuation it would be practically 
impossible to remove a man."(^) 

Value to the Public Service of a Superannuation System. 

Sir William Henry Stephenson, chairman of the Board of Inland 
Revenue, who had formerly been for many years in the Treasury and 
had had great experience in the organization of the public service 
generally, and of inlaxid revenue service in particular, said: 

"I think there is a great advantage in superannuation as regards 
permanent officers; it is a great hold upon them. 

"Even down to messengers and persons who are engaged on weekly 
wages?" asked the chairman. 

"Yes, I think it is quite as important with them. It is an immense 
power that you have over a man's disposition to behave himself 
we^''^*) 

The Chancellor of the Exchequer declared himself with especial 
emphasis in favor of the pension. 

"I think that superannuation is a very good institution indeed," 
said he. "We get men young; we teach them their business; we 
shall get them I think with a fair prospect of having men of good 
intelligence; and by practicing their business, they learn it until they 
become very valuable, and worth indeed a great deal more than the 
salaries in the public service, which are not very high. By superan- 
nuation we contrive to retain them in the service, whereas, if we 
had not superannuation, we should always have to be teaching and 
bringing up persons who would be going oflP and carrying their attain- 
ments to a higher market. I think that superannuation is a very 
good institution, and an economical one."('=) 

a Third Report on Civil Services Expenditure. 1873. Minutes of evidence, p. 203. 
b Idem, p. 209. 
cidem, p. 230. 



civil-seevice retirement in great britain. " 107 

Compulsory Retirement at a Given Age Advisable. 

While agreeing that a superannuation system was desirable, the 
witnesses were not by any means convinced that the scheme estab- 
lished by the Act of 1859 was beyond criticism. One weakness of 
the system was felt by all. This was the failure of the law to make 
retirement compulsory at some given age. Mr. Robert G. W. Her- 
bert, the permanent Under Secretary of the Colonial Office who had 
previously been with the Board of Trade and with the Railway De- 
partment and had therefore had a variety of experience of official 
and departmental organization, was asked if he did not observe a 
tendency of persons to hang onto their offices long after they had 
become inefficient. 

"Yes," said he, "there is that tendency. There is no legal means 
of requiring a man to leave. The English superannuation act does 
not exact that at a certain age a person shall retire; it is merely by 
what I suppose I may call a friendly arrangement that he goes when- 
ever it is found necessary for him to go. I think the superannua- 
tion act ought to contain a proviso that at a certain age, either 60 
or whatever other age might be thought expedient, a clerk should be 
compelled to leave the service, unless he were asked to remain for a 
particular time, say two or three years longer, by the head of his 
department, on special grounds, I think that retirement should, as a 
general rule, be compulsory at a certain age."(") 

Asked if he would wish to have the power of compulsory superan- 
nuation. Sir William H. Stephenson said, 

I should be very glad to see it, and I think it would be a very use- 
ful power both to the public and very often to the individual him- 
self. * * * I have seen many instances in my own knowledge, 
both recently and in former times, of men far overstaying their 
energies. (*•) 

Mr. Reginald Earle Welby, principal clerk for financial business of 
the Treasury, was asked if he did not think that, in the interests of 
economy, superannuation might be withheld from certain classes of 
civil employees, and answered rC"") 

"I am always afraid of sweeping away the right to pension, be- 
cause I feel convinced that it will mean keeping men in the service 
after they have ceased to be efficient; I feel that so strongly that I 
think, if I may venture to say so, that retirement throughout the 
service ought to be compulsory at the age of sixty-five. 

" It is compulsory as against the Government at the age of sixty, 
is it not ? asked the chairman. 

"Yes, but there is no limit as against the officeholder. 

"There is no reciprocity, is there? 

"There is no reciprocity." 

o Third Report on Civil Service Expenditure. 1873. Minutes of evidence, p. 166. 
b Idem, p. 209. 
cidem, p. 7. 



108 CIVIL-SEE VICE EETIREMENT IN GEEAT BEITAIN. 

Cost of JVIaintaining Free Pension System. 

The question of expense in connection with the maintenance of 
civil pensions was recognized to be of first importance. Mr. Welby 
handed in the following estimate of the sum required for the current 
year (1873-74) to pay salaries and superannuation to all civil serv- 
ants. This included not merely those employed in the civil service 
proper but also civilian employees of the Army, Navy, Judiciary, and 
Revenue departments, and showed that the total charge for " non- 
effective civil services" was estimated to be £1,829,931 ($8,905,359.21). 
Noting this fact, the chairman of the committee asked Mr. Welbj 
if that expenditure was tending to diminish or to increase. 

"The superannuation proper is tending to increase in one direc- 
tion and to decrease in another," said he, ''It increases, of course, as 
fresh departments are formed as part of the civil service; it has a 
tendency to decrease as the number of established officers entitled to 
pension is diminished. For instance, if a department which had 
had fifty clerks on the establishment is reduced to thirty clerks on 
the establishment, the tendency of course will be a diminution of 
the pension list; in addition to that we are still under the effect of 
the superannuation regulations before 1829, which were on a much 
more liberal scale than those which are now accorded to the civil 
service, but the pensions granted previous to 1829 are of course fall- 
ing off rapidly now, and the pensions now granted are upon the lower 
scale, therefore there are those three different influences at work."('P) 

The estimate furnished by Mr. Welby was as follows : C*) 

ESTIMATE (APPROXIMATE) OF THE AMOUNT TO BE PAID IN SALARIES AND ALLOW- 
ANCES IN RESPECT OF EFFECTIVE AND NONEFFECTIVE CIVIL SERVICES OF THE 
ARMY, NAVY, CIVIL, AND REVENUE DEPARTMENTS DURING 1873-4. 

[Only those salaries are included which will carry with them a claim to pension.] 





Charged on votes. 


Charged on Consolidated Fund. 






Ordinary 
services. 


Political 
services. 


Total. 


Ordinary 
services. 


Political 
services. 


Total. 


Total. 


Army: 


$1,233,521 
834, 507 

3, 883, 419 
1, 423, 919 

6, 082, 629 
1,209,939 

5,136,912 
1, 033, 601 

3,913,673 
737, 946 

14,792,325 
2, 348, 772 


146, 232 


$1,279,753 
834, 507 

3,915,051 
1, 423, 919 

6,359,654 
1, 209, 939 

5, 192, 750 
1,033,601 

3, 913, 673 
737, 946 

14, 792, 325 
2, 348, 772 








$1,279,753 










834, 507 


Navy: 


31, 632 








3, 915, 051 






$10,706 

97, 330 
d 159, 018 


$10, 706 

148,282 
d 250, 099 

2, 458, 444 
1, 055, 870 


1, 434, 625 


Civil service: 

Effective 


277,025 


$50, 952 
91, 081 

2, 458, 444 
1, 055, 870 


6,507,936 




d 1,460, 038 


Criminal and judicial: 
Law and justice — 


55, 838 


7, 651, 194 






2,089,471 


Police^ 
Effective 






3,913,673 


Noneffective 

Collection of revenue: 








. 


737, 946 










14, 792, 325 












2,318,772 














Total: 


35, 042, 479 

7,588,684 


410,727 


35,453,206 

7, 588, 684 


2, 509, 396 
1, 146, 951 


97,330 
169, 724 


2,606,726 
1, 316, 675 


38, 059, 932 




8, 905, 359 









a Third Report on Civil Service Expenditure. 1873. Minutes of evidence, p. 7. 

b Idem, Appendix No. 10, p. 406. 

c In the military aud postal departments a large amount is paid in salaries, the recipients of which will 
not, in all cases, receive superannuation. As each case will be decided by itself on no general rule, they 
have not been included in this return. 

d Includes £11,380 ($55,381) hereditary pensions. 



civil-seevice retirement in great britain. 109 

Pension Charge Reduced by Reducing Number of Pensionable 

Clerks. 

A very interesting fact in connection with the efforts made by the 
Treasury to reduce the cost of superannuation was brought out by 
Mr. Welby's testimony. This was the pohcy of the Treasury to 
substitute as far as possible those persons outside the permanent 
civil service for permanent officers entitled to superannuation. 
The result was a small number of classes of established clerks and a 
considerable number of subordinates. Mr. Welby was asked: 

Is it your opinion that the tendency which you have explained at 
the Treasury to substitute nonestablished for established employees 
will ultimately produce a considerable reduction in the charge for 
superannuation ? {"■) 

To this he answered: 

I should think so; I will take, as an instance, the result of the 
enquiries during a period of years into the Customs; I think the 
result of that has been to reduce something like 650 established 
clerks to a little over 400, and, of course, the future charge for super- 
annuation will be reduced in that proportion. ("') 

This avowed policy of the Treasury threw into bold relief the most 
obvious objection to a straight pension; that is, the great expense 
and the difficulty of keeping a civil pension list within bounds. 
The method resorted to by the Treasury may have been effective, 
but the question naturally arises, Did it not result in the defeat of 
the system and the revival of that invidious distinction between 
different classes of employees complained of at the time of the pas- 
sage of the Superannuation Act of 1859? 

Development of Idea that Pension is a Substitute for Salary. 

Through all these hearings before the Select Committee of 1873 
runs an idea destined in later years to develop into more definiteness. 
This is the idea that superannuation allowances are a substitute for 
greater salaries. It was generally held that from the Government's 
point of view it is wiser to grant pensions and give less pay than to 
pay higher salaries and give no pensions. 

Mr. Thomas Henry Farrer, permanent head of the Board of Trade, 
who had been in the public service for twenty-three years, said: 

I used to be of opinion that it would be a better plan to pay higher 
salaries and give no pension; but seeing the extreme difficulty of 
ever getting rid of an old public servant, however useless, without a 
pension, I have changed my opinion, and I think that there must be 
pensions for the upper part of the establishment. C") 

o Third Report on Civil Service Expenditure. 1873. Minutes of evidence, p. 7. 
6Idem;p. 190. 



110 CIVIL-SEE VICE RETIKEMENT IN GEEAT BRITAIN. 

Sir William H. Stephenson was asked if lie did not think that a 
civil servant engaged for a limited period, after which he was to be 
compulsorily retired, with no provision for a superannuation allow- 
ance, might not be naturally expected to make arrangements out 
of his salary on his own account. His answer was : 

Yes; but then I fall back upon the question of economy. I think 
that if you introduce that system, you would find yourself drifting 
into a higher payment of salaries. 

Of the same opinion was the Hon. Adolphus Liddell, Under Secre- 
tary of State for the Home Department. Said he: 

I am not very good at figures or finance, but it does seem to me, as 
an ordinary being, that if you give a man an extra salary to enable him 
to insure, you do the same thing by giving him that extra salary as 
by giving him a superannuation allowance with a somewhat less 
salary. 

"On the whole, you would rather have things as they are?" he was 
asked. 

I would. I think you would by that means insure a more satisfied 
and more permanent servant. C^) 

The gentlemen who appeared before the Select Committee were 
questioned in passing as to their views of a system of deductions 
■from salaries as a substitute for the expensive pension system in 
vogue. While most of them showed familiarity with the provisions 
of the Act of 1834, under which the old contributory system of super- 
annuation was carried on, and appreciated its avoidable faults and 
the reasons for public discontent under that system, they seemed 
to think that the heartburnings of that period had been such as to 
make it unwise to revive the principle of deductions from salaries as 
a mode of paying pensions and compensations. "The action of 
Parliament in the matter," said Mr. Welby, * * * "was looked 
upon as closing the chapter." 

Recommendation of the Committee. 

As a result of these hearings the committee included in its third 
report a recommendation for the compulsory retirement of officers 
at a given age. The paragraph relating to the subject was as follows: 

With respect to superannuation, what your committee have al- 
ready stated will indicate the doubt they feel as to the practicability 
of excluding any considerable body of the clerical establishments 
from its benefits. The advantages of the system, as retaining in the 
service trained officers, as protecting the public from combinations, 
and as a means of enforcing discipline, are obvious. On the other 
hand, the aggregate charge on the exchequer for superannuations and 
pensions is increasing; and your committee fear that the extent to 
which it is likely to grow may produce an effect on the public mind 

o Third Report on Civil Service Expenditure. 1873. Minutes of evidence, p. 212. 



CIVIL-SEEVICE RETIEEMENT IF GEEAT BEITAIN. Ill 

unfavorable to the whole system. Whether, however, it should or it 
should not be thought desirable to limit for the future the numbers 
entitled to the benefits of the superannuation act, your committee 
recommend that powers should be sought from Parliament for com- 
pelling the retirement of officers at a given age (say 65), if in the 
opinion of the head of the department such retirement would be for 
the public benefit. {"■) 

Great as was the need of fixing compulsory retirement at some 
given age, it was years before the recommendation of the Select 
Committee of 1873 was acted upon. The same recommendation is 
found fifteen years later among the recommendations of the Ridley 
Commission in its second report, printed in 1888, but it was not until 
the issue of the order in council dated November 29, 1898, that re- 
tirement from the civil service was made compulsory at the age of 65. 

PLAYFAIR COMMISSION, 1874. 

In 1874, the year following the parliamentary inquiry into civil 
service expenditures just noted, a commission was appointed by 
Treasury minute to inquire into the following subject connected with 
admission to and service in the civil departments of the State : {^) 

1. The method of selecting civil servants in the first instance. 

2. The principles upon which men should be transferred from 
office to office, especially in cases when one establishment has been 
abolished or reduced in number, and when there are, consequently, 
redundant employees, whose services should, if possible, be made 
available in other departments. 

3. The possibility of grading the civil service as a whole, so as to 
obviate the inconveniences which result from the difference of pay in 
different departments. 

4. The system under which it is desirable to employ writers or 
other persons for the discharge of duties of less importance than those 
usually assigned to established clerks, or duties of a purely temporary 
character. 

Optional Retirement After Twenty Years' Service Proposed 

AND Rejected. 

The work of this commission resulted in the adoption of a scheme 
of reorganization for the civil establishments. The subject of super- 
annuation had not been referred directly to the Playfair Commis- 
sioners, but they stated in their first report that it had been ''forced 
on their attention." The chief obstacle to the establishment of 
their scheme of organization was the presence of large numbers of 
old men in the offices who had not died out nor been compulsorily re- 
tired. The only proposal relating to superannuation with which they 

o Third Report on Civil Service Expenditure. 1873. Minutes of evidence, p. v, 
& Twenty -fourth Report of the Civil Service Commissioners. 1879. Appendix 
IX, p. 568, 



112 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 

dealt, however, was one that the State should give an option of 
retirement with superannuation allowance after twenty years' serv- 
ice, with a view principally of quickening promotions. This they did 
not recommend. Said they: 

It has been urged that it would be economical for the State to give an 
option of retirement with superannuation allowance after twenty years' 
service ; various witnesses support this proposal, chieflj?^ on the ground 
that it might quicken promotion. No doubt there is considerable 
force in this view if the present division into classes continues; but 
it has little weight if a service scale such as we have proposed be 
adopted. In that case the question will be simply whether a man 
with twenty years of service has an equitable right to a pension of 
20/60ths of his existing salary, just as a man at the age of 60 has to 
x/60ths, according to the number of years of his service. We do not 
see any abstract justice in the proposal. The increments upon the 
original salary have only the justification of the increased value to the 
State acquired by the official experience of the clerk. But if he leave 
the public service in the prime of life with a pension calculated upon 
this augmented salary, the State will derive little or no advantage 
for the increments which represent maturity in work ; on this ground 
we have not deemed it right to support the proposal. Another con- 
sideration has also weighed with us. If it were fair that a clerk 
-should have an option of resigning after twenty years' service, with 
superannuation, on the ground that the service did not suit him, it 
would be necessary, in justice for the State to exercise the power which 
it now possesses in theory, but rarely exercises, of dismissing a clerk 
after twenty years when he did not suit the service. But this would 
place the clerks in a worse position than they are at present, for they 
are now entitled after a service of twenty years to count ten years in ad- 
dition to their service when they are compelled to retire on abolition 
of office. There is a further consideration, viz, that the adoption of 
this principle would have the effect of weakening the tie which now 
binds a man to the service, and of inducing him to look outside that 
service for his prospects of advancement. On the whole, therefore, 
we do not see any advantage, either to the State or to the clerks, in 
the proposal made to us.('^) 

SELECT COMMITTEE OF 1885. 

Committee's Recommendation of a Contributory Pension 

Scheme. 

In 1885 a select committee was appointed by Parliament to inquire 
into the subject of national provident insurance. Its labors continued 
for about two years, during the course of which much evidence was 
taken concerning conditions imposed by various private employers 
of labor upon those in their employment, in order to provide for their 
superannuation. This committee was impressed with the growing 
cost of pensions, and came to the conclusion that not only the civil 

ffl Twenty-fourth Report of the Civil Service CommissionerB. 1879. Appendix IX, 
p. 592. 



CIVIL-SEKVICE KETIKEMENT IN GKEAT BEITAIN. 113 

but the military establishments of the State also might well follow 
the example of private business firms in requiring employees to con- 
tribute to their pensions. They stated in their report that they — 

Are of opinion that all persons hereafter appointed to the service 
of the Crown, whether civil or military whose service at present 
counts towards pension, should contribute towards that pension by 
a percentage deduction from salaries or pay. The steady and rapid 
growth of the pension list points to a proximate revision of the entire 
policy of burdening the public with the provision of pensions; the 
enterprise of private individuals and firms indicate the advantage 
of self-help as a condition of employment (which it might be proper 
to supplement with state-help) ; and your committee recommend 
that not only in service counting under the present system towards 
pension, but also in the police and other unpensioned branches of the 
public service, contribution to a pension fund should be made oblig- 
atory. (") 

KIDLEY COMMISSION, 1886. 

On September 20, 1886, a royal commission, of which Sir Matthew 
White Ridley was chairman, was appointed to inquire into the 
condition of the civil establishments. The commission was author- 
ized to inquire into the numbers, salaries, hours of labor, superan- 
nuation, cost of the staff, and the administration, regulation, and 
organization of the civil offices. They were instructed as follows: 

You will state whether, in your opinion, the work of the different 
offices is efficiently and economically performed; whether it can be 
simplified; whether the method of procedure can be improved; and 
whether the system of control is deficient or unnecessarily elaborate. 

As ten years have now elapsed since the adoption of the scheme 
of organization recommended by the Playfair Commission, the time 
has come when the working of the scheme may, with advantage, be 
reviewed. You will, therefore, report whether the scheme has 
been fairly tried; whether its provisions have met the requirements 
of the service, and deserve confirmation and whether any modifi- 
cations are needed to give it complete development. 

Lastly, you will examine the non-effective charge of the civil 
service, and advise whether the present pension scales and regula- 
tions are equitable alike to the State and to its servants. C") 

Growth of ''The Deferred Pay" Argument. 

Wliile the recommendations of this commission in regard to super- 
annuation were not acted upon, the record of the inquiry made by 
it into the working of the pension scheme and the evidence sub- 
mitted to it on the feeling of the civil servants in regard to the way 

« Second Report of Commission on Civil Establishments. 1888. Appendix, p. 423. 
6 Idem, p. V. 

35885— S. Doc. 290, 61-2 8* 



114 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

in which they were pensioned are of great significance to the student 
of the British superannuation system. The most striking fact 
brought out was the development of the idea suggested to the Com- 
mittee on Civil Expenditures appointed in 1873, that the pension is 
a substitute for increase of salary, or, as it may be more forcibly 
stated, that the pension is actually paid out of the salary. The 
phrase that came into vogue at the time of this inquiry and which 
has been current ever since was this: "Pensions are deferred pay." 
We see, instead of gratitude for the grant of pensions the growth of 
a conviction that salaries are lower than they would be without 
pensions, and by an amount more than sufficient to pay the cost of 
pensions, and a spirit of discontent spreading from that belief. 

Abolition of Pensions Proposed by Sir Robert Hamilton in 
Favor of Savings Scheme. 

A memorandum was submitted to the commission by Sir Robert 
Hamilton which created the greatest interest both among members 
of the commission and members of the civil service, and which 
became the center of debate that has ever since continued around 
the words "deferred pay." 

Attackmg the existing pension system as a system of "deferred 
pay," and maintaining therefore that it is "clearly inequitable to 
withhold from the representatives of a man who dies on full pay the 
deferred pay which he has earned," Sir Robert Hamilton proposed 
a complete change in the system. Assuming that part of the salary 
was being withheld as "deferred pay" to be returned to those mem- 
bers of the service who became pensionable, he suggested that it 
would be better to place this amount to each man's credit in the 
government savings bank, to be returned to him with interest on 
his withdrawal from the service or to his representatives in case of 
his death. What he proposed was virtually an abolition of the 
pension system and the adoption of a savings arrangement. In 
view of the serious consideration given his memorandum and the 
discussion of the basic principles underlying the whole theory of 
superannuation which it opened up and which has gone on ever 
since in England, the most important part of that memorandum is 
here given: (") 

The reference to the commission to "examine the noneffective 
charge of the civil service, and advise whether the present pension 
scales and regulations are equitable alike to the State and to its 
servants," is an extremely important one. The Playfair Commission 
did not deal with this subject beyond expressing their opinion that it 
would not be desirable to give clerks the option of retiring, say, after 

« Second Report of Commission on Civil Establishments. 1888. Memorandum, 
pp. 572, 573. 



CIVIL-SEEVICE KETIREMENT IN GREAT BRITAIN. 115 

20 years' service, instead of being required as at present to serve until 
they are 60 years of age. I have long thought that the present 
pension system required radical alteration. 

Payment of superannuation can not be defended on the ground of 
its being a charitable contribution, for the State as the trustee of the 

Seople's money would not be justified in making any such use of it. 
lut it can be defended on the ground that it is a means of procuring 
cheaper service and keeping down the amount of the salaries which 
would otherwise be payable. In other words, it represents deferred 
fay; but if this be so, it appears to me to be clearly inequitable to 
withhold from the representatives of a man who dies on full pay the 
deferred pay which he has earned. 

Another defect of the present system is, that while deferred pay 
should bear some proportion to the varying rates of pay received for 
active employment, the pension is fixed solely with reference to the 
salary paid in the last three years of service. 

Again, in the civil service, but still more so in the military services, 
huge future liabilities are often incurred by some concession or alter- 
ation which makes but little addition to the estimates of the year in 
which the change is effected, and which never receive the attention 
they deserve. To give a very simple case : If an officer receiving, say, 
£600 [$2,919.90] a year, is allowed to progress by £25 [$121.66] a 
year to £900 [$4,379.85], the estimates for the year show only an 
increase of £25 [$121.66] a year until the maximum is reached. But 
when that man comes to retire instead of getting two- thirds of £600 
[$2,919.90] or £400 [$1,946.60] a year as pension he gets two-thirds of 
£900 [$4,379.85] or £600 [$2,919.90] a year. The capital value of 
this addition in the shape of pension (taking the rates laid down for 
commutation) would be £200 [$973.30] x 9.19 = £1,838 [$8,944.63]. 

If it were possible to make the estimates of each year bear the 
whole charge, both effective and noneffective, incurred in that year, 
a most valuable check would be created upon extravagant retire- 
ment schemes, and Parliament would know exactly what it was 
asked to sanction. 

I think a scheme for superannuation could be devised which would 
meet this important requirement, and also secure that each man, or 
his representatives, received the exact amount of his accumulated 
deferred pay. The only real difficulty and objection is that it would 
involve a largely increased charge during the period of transition 
from the one system to the other. 

Assuming that for every £100 [$486.65] now paid in salaries there 
is £20 [$97.33] paid in pensions, and that this is a fair proportion to 
maintain, when a clerk is appointed at £100 [$486.65] a year, £120 
[$583.98] should be provided in the votes in respect of him. Of this, 
£100 [$486.65] would be paid .to him, and £20 [$97.33] placed to his 
credit in the Government savings bank. On this amount he would 
have no claim whatever until his retirement. But when his service 
came to an end, he or his representatives, if he died in service, would 
receive his deferred pay which would be accumulating to his credit 
at compound interest. 

The advantages attending such a plan over and above the two main 
ones which I have pointed out would be very great: 

(1) The proportions of deferred pay could be varied to suit the 
differences of service, e. g., in services such as certain grades of the 



116 CIVIL-SEEVICE EETIEEMENT IN GREAT BEITAIN. 

Army and Navy, and the Police, in which physical energy is essential, 
and it is not desirable to retain men beyond 40 or 50 years of age, the 
proportion of deferred pay might be greater than in the case of clerks. 
It might also be somewhat raised to meet the case of what is called 
''professional qualifications" under sec. 4 of 22 Vict., c. 26. 

(2) So long as the service did not suffer from the withdrawal of the 
official experience of a clerk, and the office should of course always 
have the power of vetoing a retirement, it would not matter from a 
pecuniary point of view after what length of service a clerk might elect 
to retire. 

(3) It would be much easier than it is at present for a department 
to get rid of inefficient men. Some small addition might be added 
for compensation when a clerk was required to retire before 60 years 
of age; but this would have to be provided for in the estimates for 
the year in which he retired, and would only be awarded if his record 
was very good. In other cases it would be a condition of service that 
he must retire when required to do so by the head of his department, 
on his deferred pay alone. I attach great importance to this power. 
Men, especially towards the top of an office, should be judged by a 
high standard, and removed without hesitation if they fail or cease 
to come up to it. 

(4) No trouble could arise about re-employing men who had been 
pensioned, for the cost to the State would be the same in all cases. 

(5) The whole of the costly machinery for the payment of pensions 
might eventually be got rid of, and a large saving thereby eftected. 

(6) The heartrending cases which now constantly occur of good 
men dying in harness, without having been able to make any provi- 
sion for their families, would be largely met. 

Not only would such a scheme enormously promote economy and 
efficiency, but I feel certain that it would be most acceptable to the 
civil servants as a body. 

I see no way of dealing satisfactorily with the question of super- 
annuation short of such a complete change in the system. The pres- 
ent system is defective throughout. Clerks practically can not be 
got rid of until they are 60 years of age, however inefficient they may 
be, except by making a shuffle of the cards, called a ''reorganization 
of office," and by giving them certificates that they have served with 
"zeal and fidelity." Even when they are 60, although they can 
themselves claim to go, there is no statutable power to get rid of them. 
It is true that the War Office and Admiralty have made office rules on 
this point, and enforce compulsory retirement at the age of 60, 
extended m some cases to 65, but their competence to issue such rules 
is not entirely clear. I regard compulsory age retirement as abso- 
lutely essential to keep an office in a state of efficiency, whatever the 
system of superannuation may be. 

I should extend commutation to all pensions. It costs the Gov- 
ernment nothing, and is a benefit much prized by the service. From 
my scheme (supra) it will be seen that I attach no importance to the 
policy of the State securing a yearly provision for its servants in 
place of compensating them once for all, and leaving them to make 
their own investments. But if the regulations of the Treasury 
minute of 28th October, 1882, are maintained, which limit the com- 
mutation to two-thirds of the pension, or to such less proportion of 
it as leaves an amount of not less than £80, I can see no reason that 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 117 

can, from any point of view, be urged against making all pensions 
commutable. 

Approval of Sir Robert Hamilton's Proposal Expressed by 
Officers of the Treasury. 

Study of the testimony taken by the commission shows a sur- 
prising agreement on the part of the witnesses with the suggestion 
of Sir Robert Hamilton to abolish the pension system and establish 
instead a savings scheme which would enable the civil servant, on 
retiring from the service, to take his money in a lump sum or, on 
dying, to leave it to his representatives; in other words, to commute 
the pension he would receive if he remained to the pensionable age. 
Approval of Sir Robert Hamilton's suggestion in the main was 
expressed by high officials of State, such as Sir Reginald Welby and 
Sir Herbert E. Maxwell, who constituted the committee on pensions 
and superannuation at the Treasury, and Sir Thomas Henry Farrer, 
permanent Secretary of the Board of Trade, as well as by humbler 
members of the service, such as clerks at the Board of Trade, in the 
Post-Office, and in the Inland Revenue Office. Others who were 
not questioned particularly about their view of Sir Robert Hamil- 
ton's suggestion nevertheless took occasion to praise a contributory 
system — provided refund of payment was allowed — for two reasons. 
They thought it superior to the existing system because it enabled 
the heads of departments to dismiss inefficient clerks without cruelty 
and it softened the hardship caused to families of clerks who died 
in harness. The assumption that a pension was ''deferred pay" — 
that is, that something was virtually being deducted from salaries all 
along in order that pensions might be granted at the end of the 
service — seems to have been tacitly accepted by all witnesses. The 
majority of them argued also for the funding of the contributions. 
The experience of English railways in retiring their employees seems 
to have made a generally favorable impression, especially the scheme 
of the London and Northwestern Railway Company's fund, which 
was based on contributions of 2J per cent of salary from the em- 
ployees, with the addition of an equal amount from the company. 
Compulsory retirement at a given age was unanimously urged, and 
calculation of the pension on the basis of the mean salary rather 
than the ultimate salary was approved, by many as less expensive 
for the State and entirely just to the civil servant. ('^) 

a For evidence in regard to superannuation submitted to the Ridley commission, 
see Summary of Second Report of the Ridley Commission Appointed to Inquire into 
the Civil Establishments of the Different Offices of State at Home and Abroad, 1888, 
p. Ixxiii. Evidence of Sir Reginald Welby, Sir Herbert Maxwell, Sir Algernon West, 
Sir E. Du Cane, Sir Thomas Farrer, Messrs. Mowatt, Dawson, Whittle and Parkhouse, 
Jastrzebski and Day, Lushington, Moran, Giffen, Hawkes, Bullock and Barnes, Salin, 
McCormick, Calcraft, and Blackwood. 



118 CIVIL-SEEVICE EETlEEMEiSTT IN GEEAT BEITAIN. 

Assumption that Postponed Chaege is Made by the State to 
Pay Pensions Accepted by Sir Reginald Welby. 

The testimony of Sir Reginald Eaiie Welby, before the Ridley 
Commission is particularly interesting and significant, not merely 
because as permanent Secretary of the Treasury and a member with 
Sir Herbert Maxwell of the Treasury committee on superannua- 
tion he was in a position to make important observations on the 
working of the existing system, but because his testimony shows that 
in the fifteen years which had elapsed since, as Mr. Welby, principal 
clerk for financial business of the Treasury, he had testified before the 
Committee on Civil Expenditures in 1873, his views as to the needs of 
the service in the matter of superannuation and what could and should 
be done in the interests of the public had undergone some develop- 
ment. In 1873, although he stated that the action of Parliament in 
1857 in abolishing the system of deductions was against the wish of 
the Treasury and the Government of the day, he seemed disposed to 
regard the incident as closed. In 1886 he was not by any means so 
sure that the chapter written in 1859 establishing a universal pension 
system should be accepted as final. He expressed himself as in 
favor of the principle of the London and Northwestern Railway 
pension scheme, namel}^, a contribution by the servant supplemented 
by a similar contribution from the employer, and said he saw; no 
reason why this principle should not be introduced in the civil service, 
although the fact that in the civil service salaries are sometimes 
largely increased might be an element of difficulty in fornfing a 
solvent fund. He was very decidedly of the opinion that a bona 
fide fund should be created, and not merely a paper fund. Said he: 

I think the minds of statesmen, the chancellors of the exchequer, 
and of the Government, have considerably changed within the last 
thirty years in that sense. Thirty years ago the idea was to have no 
funds; to pay everything into the exchequer as it came. The con- 
sequence was that neither a minister nor head of a department, nor 
clerk ever watched the workings of any scheme. The evil of not 
watching the working of a system has come forcibly home of late 
years, and our tendency now is to favor in any scheme of this kind 
the creation of a fund. (") 

He was therefore not in favor of a contribution by the clerk simply 
as so much in aid of the exchequer charge for pensions (the motive 
that had prompted the Superannuation Act of 1834), but thought 
the contributions by employer and employee should be "put into 
the fund and managed on actuaries' calculations, so that the fund be 
kept solvent." He believed that a personal account should be kept 
with each subscriber and that the actual contributions of the civil 

"Second Report of Commission on Civil Establishments. 1888. Minutes of 
Evidence, p. 402. 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 119 

servant should be returned in case of death or resignation. He stated 
also that the State had profited by the limited commutation of pen- 
sions which had been allowed. Asked whether he would rather 
attempt to keep the existing system with modifications or to set up a 
fund^ he answered: 

I have always regretted the abolition of the old superannuation 
deductions, as I think it was a mistake. I think a greater part of the 
mistake was due to the fact that the Government took no trouble to 
carry it out fully, or to give back to men that which had been taken 
out of their pockets, but, if the old deduction had been retained upon 
a reformed system, I think that would have been very fair. («) 

Confusion in Sir Reginald's Mind as to Amount of Postponed 

Charge. 

While Sir Reginald made no very definite proposals as to the details 
of a "reformed system," he made it clear that he, like Sir Robert 
Hamilton, stood for certain definite principles. These were the 
acknowledgment that the existing system, while on its face a pension 
scheme pure and simple, was in reality a contributory scheme; the 
establishment of a system which should be avowedly a contributory 
system, State and civil servant each contributing to a superannuation 
fund; this fund to be actuarially administered; and contributions 
to be returned on withdrawal from the service whether by death or 
resignation. His ideas as to the amounts which would have to be 
contributed by the State and by civil servants and the scale of 
pensions which could be allowed to establish a sound and feasible 
scheme were hazy, but he was perfectly clear as to the principles 
involved. Said he : 

We have tliis position. On one side we have a great company which 
works its noneffective system by taking 2^ per cent from the employee 
and giving 2^ per cent itself. On the other side we have the State 
working an extremely liberal scale of pension which involves a post- 
poned charge of from 12 to 15 per cent, compensations apart. There- 
fore the question lies, I presume, somewhere between these points. 
For instance, the State might contribute 1 per cent and the individ- 
ual 5 per cent. * * * "We might go further. The contributions 
being prepaid and accumulated, you might work a liberal pension 
scheme with 8 per cent and 4 per cent, or a proportion of that kind, 
according as you would find it necessary. My impression is that we 
shall not get a really permanent settlement of the question on the 
basis of so small a contribution by the State of 2^ per cent. That is 
what I want to bring before the commission. C*) 

This is interesting because it shows Sir Reginald's acceptance of 
the assumption that the State makes a ''postponed charge of from 

a Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 404. 
&Idem, p. 402. 



120 CIVIL-SEEVICE EETIREMENT llST GREAT BRITAIN. 

12 to 15 per cent, compensations apart," in order to pay pensions. 
Including compensations, he figured the postponed charge at 20 per 
cent, the same assumption made by Sir Robert Hamilton in his 
memorandum. As this assumption underlies all the agitation that 
has hung around the words ''deferred pay," and as it is persistent 
to this day. Sir Reginald's explanation of its origin is important. 
Said he: 

I came across the other day some evidence which I have not seen 
anywhere else. It was an attempt made by the then actuary of the 
Government to estimate what the future normal charge of the present 
pension system would be. It was not an official paper; it.was a semi- 
official paper, and the date of it is 1869. He took 10 of the big ordi- 
nary clerical offices, such as the Customs and the Inland Revenue. 
I am not quite convinced that his salary list would not be subject to 
reconsideration and some alteration, but I may say generally that 
what he arrived at was this. Take the salaries of any offices as they 
stand, go forward from thirty to thirty-five years, and you will find 
the normal noneffective charge on the present pension scale will be 
from 12 to 15 per cent of the salaries of the thirty years previously. 
That was his estimate of the normal cost to the State of the present 
pension law — leaving out compensations. (") 

This is a perfectly reasonable conclusion for the actuary to have 
reached, for there is always a definite relationship between existing 
pensions and the salaries of a generation ago, since the pensioners of 
to-day are those who were on the active pay roll thirty years ago. 
In other words, the effective vote of to-day becomes the noneffective 
vote of to-morrow, allowance being made on one hand for deaths, 
resignations, and reduction of the pension by the amount which it 
is less than the salary, and on the other hand for increases in salary, 
a total diminution roughly estimated amounting to about 80 per 
cent. That the ratio of the existing pensions and compensations to 
past salaries amounted to 20 per cent in 1869 is therefore highly 
probable. This important statement was not, however, fully under- 
stood by all who referred to it, as will be seen later on. 

Assumption that Postponed Charge is Made by the State to 
Pay Pensions Accepted by Sir Herbert Maxwell. 

That Sir Herbert E. Maxwell, Sir Reginald Welby's colleague in 
the Treasury, had also given the subject of superannuation very care- 
ful study is evidenced by his testimony. Like Sir Reginald and Sir 
Robert Hamilton, he thought a complete change in the pension 
system was desirable. Sir Herbert prepared for the use of the com- 
mission a memorandum on the origin and development of superannua- 
tion and retired allowances in the civil service, with an analysis of 

a Second Report of Commission on Civil Establishments. 1888. Minutes of 
Evidence, p. 402. 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 121 

'the alternative remedies against the growth of the ineffective vote. 
Like Sir Reginald, he was clear as to the principles which should be 
laid down in the solution of the problem but admitted his inability 
to see how the details could be worked out satisfactorily. He was 
also pessimistic as to whether or not the most ideal system would 
be proof against probable assault, on political grounds, from Parlia- 
ment. Said he: 

If it were possible to provide any guarantee for the permanence 
of a superannuation fund, it is difficult to see what objection could be 
raised against it. But in view of the fate which befell the last fund, 
it is only too probable that the same forces which prevailed against 
it would prevail again, namely, pressure on and by members of 
Parliament. (**) 

■ Questioned by the commission as to his views he declared: 

I have a very strong opinion that the reestablishment of a super- 
annuation fund would be to the advantage not only of the public, 
but also of the service. In the first place, the estimates of the 
year would show the liabilities of the year, and there would not be 
deferred liabilities, as there are under the present system. * * * 
They do not show the prospective additions (as well as the retro- 
spective). * * * They do not show, for example, the liabilities 
that are incurred by a reorganization. I think Sir Robert Hamilton 
gives an illustration of that. C') 

Contending that the estimates should bear the whole charge, both 
effective and noneffective (that is, both salaries and pensions) incurred 
in that year, he said: 

That would be the result of establishing a superannuation fund. 
You would pay a servant so much, and you would deduct so much 
as a contribution to the fund, and that money would be invested 
for him by the State, and on his leaving the service, either by death 
or by retirement or by superannuation, would be handed over to 
himself or his representatives, plus the interest. That seems to me 
the most direct and the most advantageous plan. It would make 
pensions what they profess to be now, but are not, literally deferred 
pay. It is only overshadowed by one great difficulty — parliamentary 
pressure. 

"You are clearly of the opinion that anything which brings before 
the public and the taxpayers of the country prominently, the fact 
that pensions are deferred pay, would be a good thing? " queried the 
chairman. 

"Yes;" answered Sir Herbert, "because that is the only warrant 
for pensions now. That is the ground on which they are based." C*) 

He pointed out other advantages of a superannuation fund, as he 
saw it, such as "a right to compel to retire on the one side, and a 
right to retire on the other with some sum which represented deferred 
pay which had been 'earned," and the disappearance of the distinction 

o Second Report of Commission on Civil Establishments. 1888. Appendix, p. 423. 
b Idem. Minutes of evidence, p. 154. 



122 CIVIL-SEEVICE EETIEEMENT IN GREAT BEITAIN. 

between established service and temporary service, a distinction 
which caused great difficulty in the administration of all departments. 
From his experience at the Treasury he declared also that he would 
indorse Sir Robert Hamilton's statement, "I should extend commuta- 
tion to all pensions. It costs the Government nothing, and is a 
benefit much prized by the service." 

The practical question of how to proceed to put into practice 
the principles he felt to be the correct ones that should underlie a 
proper superannuation system he confessed himself unable to answer. 
Said he: 

I think the alternative is a triple one, if I may say so, either the 
abolition of pensions altogether, the employment of men at full pay 
and washing your hands of all responsibility for their future after 
they have done their work, or secondly making them contribute to' 
a superannuation fund by which they should be under an arrange- 
ment which would entitle them at cessation of service to receive their 
full amount of contributions, plus interest ; or, thirdly, making them 
contribute to this fund and receiving a pension as under the present 
system. It involves such a deal of actuarial calculation that of 
course I hesitate to offer an opinion as to the requirements of the last 
two alternatives. C*^) 

A member of the commission hereupon queried: Would the first 
of the last two alternatives require an actuarial calculation? You 
would simply pay back the man what he paid in? 

"No, it would not" answered Sir Herbert, "but if you undertake 
the annuity instead of handing over the lump sum, it would. Of 
course the first of those two is the simpler, but it is attended with 
this disadvantage, that when you get down to the lower grades, when 
you get to artisans and copying clerks and so on, if they leave the 
service and they receive a certain amount of that money, you have 
no guarantee that they will invest it properly or that they will not 
fall into very distressing circumstances and so reflect discredit on 
their former employers." ('*) 

The chairman then asked Sir Herbert if it was his idea that deduc- 
tions should be .made from present salaries, or if he agreed with Sir 
Robert Hamilton in thinking that present salaries should be raised 
in order to get that fund. To this Sir Herbert replied: 

Of course if you proceed on the assumption that the present 
salaries are calculated on a lower rate in consequence of the pros- 
pective advantages, you would have to raise the salaries if you make 
the people provide their own prospective advantages; but that is a 
very large question. I should think, as a matter of fact, that in a 
great many cases the rate is not lower in the Government than 
outside. C"^) 

o- Second Report of Commission on Civil Establishments. 1888i Minutes of evi- 
dence, p. 155. 



civil-service retirement in great britain. 123 

Confusion in Sir Herbert's Mind as to Amount of Postponed 

Charge. 

It should be noted that, in assuming that pensions were deferred 
pay, Sir Herbert misinterpreted the statement of the actuary of 1869 
that the postponed charge of present pensions was from 12 to 15 
per cent of past salaries. Since his interpretation of that statement 
seems to have become current, and is referred to in a subsequent 
inquiry conducted by a royal commission in 1902, it is important to 
know just what his error was. He said: 

The contribution which would have to be levied from pay and 
salaries to support a fund for the payment of superannuation on the 
present scale and conditions, has been variously estimated at from 
12 J to 16 per cent. There exists a difficulty in calculating the pre- 
cise deduction necessary, owing to the fluctuating rate of promotion 
in the departments and the consequent uncertainty as to the rank 
which may be attained at a given age.(®) 

Asked for his authority for this statement, Sir Herbert said: ''I 
believe it was an actuarial computation which Sir Reginald Welby 
obtained." The statement of Sir Herbert is not, however, implied 
by that of the actuary of 1869, for although the normal cost of exist- 
ing pensions might be 12 to 15 per cent of past salaries it would take 
much less deduction of salaries than 12 per cent to pay for the pensions, 
since the operation of compound interest over a long period of years 
is a factor which has a very important bearing on the subject, but 
which Sir Herbert overlooked entirely. 

Disapproval of Sir Robert Hamilton's Proposal Expressed by 

Mr. Mowatt. 

Probably the most conservative opinions in regard to alteration of 
the existing scheme were held by a witness whose testimony was of 
importance because of his official position and because certain state- 
ments made by him were misunderstood and later misquoted. He 
was Mr. Frank Mowatt, the permanent officer at the Treasury who 
was principally responsible for the granting of pensions. Mr. Mowatt 
took the view and expressed it in half a dozen ways, that the civil 
servant was better off and better satisfied to have his salary "at the 
full market rate of wages ' ' and to be " left to manage his own pecu- 
niary concerns" in whatever manner he thought best, than to be 
given a pension, but that it was impossible practically to carry on 
the government service in that way without pensions, because when 
the time for retirement came the Government would be '^ forced to 
provide him with a pension, not on the equity of the case so much 

« Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence. Appendix, p. 423. 



124 CIVIL-SERVICE BETIEEMENT IN GREAT BRITAIN. 

as because he would appeal so directly to the sentiment of com- 
passion." In his view, therefore, pensions were necessary, but 
existed ''not so much for the benefit of the public servant as for the 
benefit of the public." In another place he said: "I think the best 
arrangement is to pay the civil servant the full market rate of his 
wages and leave him to provide for himself on his retirement." 

Although he implied in these statements that the civil servant, 
because of his pension, was paid less than "the full market rate of 
wages," Mr. Mo watt was unwilling to admit that pensions were 
deferred pay. He refused to admit it apparently because the con- 
clusion it led to was one he did not care to entertain. Said he: 

I think the definition of deferred pay, though convenient, is not 
exact ; because if it were adopted it would carry with it some conse- 
quences which are not recognized in our present system. If pension 
were a deferred pay it would be the absolute property of a civil 
servant. You must give it to him whenever and for whatever cause 
he retires, or if he should die in the service it would belong to his 
estate; again, if it were deferred pay, it must be calculated, not 
upon the salary upon which he retires, but on the salary which he 
has received from year to year. («) 

Asked if he saw no advantage in granting the recipient the rights 
implied in the theory of deferred pay he simply said he would rather 
not do so, but°gave no reason for his preference. He said that Sir 
Robert Hamilton's suggestion was practically a proposal to com- 
mute all pensions, but he did not say why that should in his opinion 
not be done. He said he would define pension "as a payment made 
by the State to entitle it to retire the officer, or to discontinue his 
services whenever the interest of the State requires it." 

He was averse to making changes in the existing system. He 
thought the scale of pensions very fair, and he held that abolition 
terms were necessary in order to facilitate reorganization. Asked if 
he did not think it would be advantageous to have the pension bear 
some proportion to the amount of years served at each rate of salary, 
in other words to be calculated on the mean instead of the ultimate 
salary, he said: 

I see no advantage in the change ; because as I have said, I regard 
the pension as the sum paid by the State to enable it to get rid of its 
inefficient officers; and so long as the um is sufficient to induce the 
controlling authority to act, it is immaterial which way you calculate 
it.e) 

One reform he did stand for staunchly, and that was compulsory 
retirement at age sixty-five. He would not even permit the reten- 
tion in office of exceptional men after they had reached that age. 

a Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 156. 
b Idem, p. 158. 



CIVIL-SERVICE EETIREMENT IN GREAT BRITAIN. 125 

He thought the formation of a fund by deductions from salary full 
of difficulties, owing principally to the pressure on and by members 
of Parliament and the resistance of members in the service. Stating 
that he believed the rates of salary in the bulk of the civil service to 
be slightly in excess of those in commercial houses, and that therefore 
deductions for a superannuation fund should be effected by stoppage 
from salary rather than by addition to it, he was led to admit that 
a scheme which provided for the return of the deductions, with 
interest, would decrease the difficulty of getting rid of incompetent 
servants. 

Confusion in Public Mind Regarding Mr. Mowatt's Testimony 
AS TO Amount of Postponed Charge Actually made by the 
State. 

The part of Mr. Mowatt's testimony which came to be historic was 
that which related to the ratio between the effective and noneffective 
charges. In answer to a question, Mr. Mowatt made the statement 
that the noneffective charge was from 16 to 20 per cent of the effective, 
or as it would be expressed in the United States, "the amount paid 
for pensions was from 16 to 20 per cent of the amount paid for 
salaries." Attention should be called to the fact that there is no 
connection between present pensions and present salaries. The 
relationship lies instead between present pensions and past salaries, 
or between future pensions and present salaries, since those on the 
salary roll of one generation are found on the pension roll of the next. 
It is a question, however, that is often asked by the laity: What per 
cent of salaries are the pensions? It was asked Mr. Mowatt and he 
answered: From 16 to 20 per cent. Unfortunately, he had just 
been asked by another member of the commission a totally different 
question in regard to what authority Sir Herbert Max\vell had for 
the statement made by him, and mentioned above, that the amount 
of deductions from salaries necessary to set up a fund had been 
"variously estimated at from 12t| to 16 per cent of salary." There 
was no connection between the two questions and the two answers, 
as a careful reading of the evidence will show, but based on this 
testimony, nevertheless, the statement was made in later years that 
Mr. Mowatt, of the Treasury, had told the Ridley Commission that 
from 16 to 20 per cent was deducted from the salaries of civil servants 
to provide pensions. The text of this evidence became of such im- 
portance in the course of a future inquiry that it is here given in full. 

Mr. Harvey. Supposing this commission should come to the con- 
clusion that it would be advisable to attempt to set up such a fund, 
for a moment putting aside your view, are you able to tell us upon 
what data the estimate was framed to which Sir Herbert Maxwell 
refers when he says, at the bottom of page seven of his memorandum, 



126 CIVIL-SEEVICE RETIREMENT IN GEKA.T BRITAIN. 

that the contributions have been ''variously estimated at from 12^ 
to 16 per cent?" 

Mr. MowATT. I am aware that there was an actuarial calculation, 
though professedly incomplete, in a certain number of offices which 
gave that estimate; but it did not include any calculation touching 
abolition of office. 

Lord Lingen. If we took as a rough test the proportion of pen- 
sions to salaries, is it not the general opinion that about 20 per cent 
of the effective represents the noneffective charge ? 

Mr. MowATT. I have made calculations myself, but they have 
never been complete, and I could not support them absolutely. But 
I should say from my experience that you would find the noneffective 
charge was about an addition of between 16 and 20 per cent. 

The Chairman. Even more than 20 ? I should think it was quite 
a sixth. I make it out to be between 16 and 18 per cent. 

Mr. Harvey. Do you mean that if a civil servant entering under 
the ordinary conditions has £100 [$486.65] a year salary, the real 
charge that the State has to undertake for him under the present 
system is £118 [$574.25] a year? 

Mr. Mo WATT. I should say at least. («) 

Approval of Sir Robert Hamilton's Proposal Expressed by 

Others. 

Sir Thomas Henry Farrer, for thirty-six years in the Board of 
Trade, first as Assistant Secretary and finally as permanent sole 
Secretary, was inclined to look with favor on the change of pension 
system proposed by Sir Robert Hamilton, because it would prevent 
posterity from being charged with the expense of the present service. 

(1 ) Would frevent pensions being charged to posterity. 

Sir Thomas said : 

Sir Robert Hamilton gives two principal reasons in favor of his 
proposed change. The first is that as a matter of principle the Gov- 
ernment have no right to give anything in the form of charity, there- 
fore you must look upon the existing pension as deferred pay. Then 
he says if it is deferred pay the man ought to have it whether he dies 
in harness or not. I think that is true logically, but it is rather 
theoretical. If a man joins the service upon the present terms I do 
not think he can complain if he gets what he has agreed to. Then 
comes the other reason, which is that by the present system we are 
charging posterity for present service. That seems to me a very 
strong reason indeed. The burden of the pension fund is growing, 
and the facility of charging posterity with it tends to great laxity in 
granting it. If you could in any way put the burden of the year upon 
each year and let it appear in the estimates, it would be an immense 
improvement. Sir Robert Hamilton gives some other reasons. He 
says that it is a very extravagant plan to make the pension depend 

a Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 162. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 127 

upon the last three years of the man's salary, and that it ought to 
depend upon his whole service. I am disposed to agree with him there, 
but there is no reason why the present scheme should not be altered 
in that respect. (^) 

Although he made no reference to the memorandum of Sir Robert 
Hamilton, Sir Algernon Edward West, head of the Inland Revenue 
Service, gave some testimony which showed him to be in sympathy 
with the idea of reverting to a contributory plan of superannuation. 
Asked if he had "any suggestions to make for a reduction of this 
enormous noneffective charge," he responded: 

I am sorry to say I am old enough to recollect the time when five 
per cent was deducted from my salary when I entered the service 
to pay my superannuation fund. In 1857 Lord Naas brought for- 
ward in Parliament the abolition of that fund. I made up my mind, 
even then, that if Sir George Lewis had met what I then thought, as 
a clerk, the just grievances of us clerks, he might have saved that 
gift of £75,000 [$364,987.50] to the civil service. I recollect we 
thought that if this five per cent was deducted from our salaries all 
through our career and we died immediately after forty years' service, 
and the State got the whole of our deductions, that was an injustice. 
I should be very much inclined, if you ask my opinion, to say that 
I think it would be a very fair thing to revert to the five per cent 
deduction from salaries for pensions, thereby reducing the charge of 
superannuation on the State, but with the distinct understanding 
that these deductions should be the absolute property of the person 
who pays them. 

Do you mean that he should get it at any period before he had 
earned his pension, or, if he died, that his representatives should get 
it ? asked the chairman. 

No, not before, but if he died in the service, that his representatives 
should get that part of it which he had himself subscribed. I do not 
think it is fair that the State should make a profit out of the deduc- 
tion ; neither do I think it is fair that the State should profit by what 
I call ill luck of the man; when a man has served forty years and dies 
the day he retires, I do not think that the State should profit by that 
misfortune, and I think the sum which has been deducted from his 
salary should be returned to his representatives, but if he lives to 
ninety the pension he has received from year to year till then should 
have been subscribed to a large extent by himself. C") 

(S) Would facilitate dismissal of inefficient employees. 

On being asked what regulations he would make in the event of 
desiring to get rid of a man for inefficiency before he had earned his 
pension, he answered, 

I think it might facilitate that very desirable object of being able 
to push a man out if you felt that he was not going out to starve. 

a Second Keport of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 381. 
b Idem, p. 254. 



128 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

I think that whatever he subscribed himself, if he was not quahfied 
for a pension from the State, he should have, unless he was absolutely 
guilty of fraud or misconduct. I do not think the State ought to 
make money out of these deductions. C*^) 

To the heads of offices generally the possibility that Sir Robert 
Hamilton's plan might offer a means of getting rid of inefficient 
employees before they had reached an age at which they could be 
pensioned without harshness to the individual or expense to the State 
was very attractive. Most of them made statements showing that 
this difficulty was one of the most delicate administrative problems 
which they had to solve. (*) Many of them stated their belief that 
a system of deductions from salary to be repaid on retirement would 
facilitate getting rid of inefficient men.(<') The only way in which 
they had been able, under the law, to rid the office of inefficient clerks 
was through a reorganization of the force in such a way as to abolish 
the office of the incapable incumbent. He could then be retired 
under section 7 of the Act of 1859 on ''abolition terms;" that is, he 
was dismissed with a compensation allowance calculated on the same 
scale as if he were qualified for a pension. A reorganization of the 
office was not always possible, and the practice arose of getting rid 
of undesirable clerks by grants of gratuities. In awarding them, how- 
ever, the Treasury was acting ultra vires, as it had no statutory power 
to do so. While the Ridley Commission was still taking evidence, 
Parliament enacted a retrospective measure designed ''to whitewash 
the Treasury" for its drastic efforts to get rid of the incapables. (^) 
This was the second clause of the Superannuation Act of 1887, a sup- 
plementary law which made provision for three sets of individuals 
not provided for in the earlier act: (1) Civil servants whose retire- 
ment was advantageous to the service because of what one Treasury 
official euphemistically described as " inculpable inability ;"(^) (2) civil 
servants injured in the discharge of their duty or their dependents, 
in case of the death of the injured servant; and (3) hired persons not 
on the established list but dismissed after more than a year's "tem- 
porary" duty. 

Not much hope was entertained that this new act would be helpful 
to administrative officers in their efforts to eliminate the inefficient 
from the service. It was generally thought to be too severe to be 
operative, since no man could be retired under that second clause 

« Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 254. 

6 Idem, pp. 219, 266, 274, 285, 337. 
cidem, pp. 78, 254, 266, 274, 339. 
<^Idem, p. 151. 
eSee testimony of T. L. Heath, Report of Royal Commission of 1902, par. 58. 



CIVIL-SEEVICE RETIREMElsrT IN GEEAT BRITAIN. 129 

unless a minute was laid before Parliament as to the exact cause of 
his retirement. C*^) 

Mr. Gabriel Moran, superintendent of the registry at the Home 
Office, said: 

I question whether - heads of departments would like to have a 
man branded publicly for life as inefficient. It strikes me as dam- 
aging to that first clause that you have to lay a minute before Parlia- 
ment saying a man is inefficient. (^) 

The general feeling of high officials in regard to the removal of 
inefficient subordinates and their ready approval of Sir Robert Ham- 
ilton's suggestion in this respect is well reflected in the testimony 
of the Honorable Robert Plenry Meade, Senior Assistant Under Sec- 
retary of State at the Colonial Office. The chairman said to him: 

Has it occurred to you at the Colonial Office that you some- 
times have a man who has been eight or ten years in the service, 
and who is evidently not fit for the service, not a man of bad charac- 
ter or anything of that sort, but a man whom it would be desirable 
to remove if possible, and who himself would be desirous to go, if 
he could take with him, not exactly a pension, but some small gratu- 
ity or something that he had earned in the nature of deferred pay? ('^) 

To this Mr. Meade answered : 

That of course is a difficulty, and it is one I suppose that all depart- 
ments have felt from time to time. I think we have been on the 
whole very fortunate. I think that every department must expect 
to be weighted with a certain proportion of what I may call lame 
ducks, and our object must be to keep that percentage down as 
low as possible. If you were able to make some arrangement such 
as you suggest, I think it would be a great assistance. At present 
you can not get rid of a man, because it is practical ruin to him. 
On the other hand I do not know that the law which was passed 
last year will help us much; because I do not think that the head 
of an office would like to gibbet a man before Parliament as incom- 
petent so that I do not anticipate very much effect from iha.t.C) 

a Clause 2 of the act of 1887 read as follows: 

Where a civil servant is removed from his office on the ground of his inability to 
discharge efficiently the duties of his office, and a superannuation allowance can not 
lawfully be granted to him under the superannuation acts of 1834 and 1859, and the 
Treasm-y think that the special circumstances of the case justify the grant to him 
such retiring allowance as they think just and proper, but in no case exceeding the 
amount for which his length of service would qualify him under sections two and 
four of the Superannuation Act, 1859, without any addition under section seven of 
that act. 

A minute of the Treasury granting an allowance under this section to any civil 
servant shall set forth the amount of the allowance granted to him, and the reasons 
for such allowance, and shall be laid before Parliament: Provided, That the Treasury 
before making the grant shall consider any representation which the civil servant 
removed may have submitted to them. 

b Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 57. 
cJdem, p. 78. 

35885— S. Doc. 290, 61-2 9* 



130 CIVIL-SEKVICE EETIEEMENT IN GEEAT BEITAIN. 

Sir Thomas Farrer alone was a little skeptical of the claim made 
for Sir Robert Hamilton's proposed plan that it would facihtate 
the dismissal of inefficient employees, but he admitted that theo- 
retically the contention was sound. He said: 

It is no doubt theoretically, perfectly true, but I think it over- 
looks what is the real difficulty of getting rid of useless men. There 
is a certain difficulty in the soft-heartedness of heads of departments 
and of ministers. But there is a very much greater difficulty in the 
pressure which is put upon them by members of the House of 
Commons. (") 

Asked if he did not think that the ability to give a man, on leav- 
ing the service, the money he had contributed would help to get rid 
of incompetent men, he answered : 

No, I do not think it would, unless the House of Commons passes 
a self-denying ordinance, and refuses to interfere with the ministers 
in the management of their departments. 

At all events it would take away a good deal of possible sym- 
pathy for an incompetent man if it was known that he had received 
a certain allowance of money? suggested the chairman, and to this 
Sir Thomas said, '' Certainly." ('*) 

With less reluctance he admitted that the proposed change might 
have a good effect on the tendency to abolish an office in order to 
rid it of an undeserving officer by putting him on a pension, a policy 
that had been found to "make great and most unsatisfactory addi- 
tions to the pension charge." Said he: 

Yes, 'I think in principle it would be a good thing. Let me say 
with regard to abolition that I agree most heartily as to what you 
say of the abuse of abolition terms. I think it is one of the great- 
est possible abuses that you should be obliged to pay high to get 
a bad man to go. It is not only the harm that it does in the way 
of extravagance and expense, but it is such a discouragement to the 
good men in office. (^) 

Approval of Sir Robert Hamilton's Proposal Expressed by 

Civil Servants. 

The advantage claimed for Sir Robert Hamilton's suggested plan 
that made the strongest appeal to the civil ' servants themselves 
was that it would lessen the hardship caused to families of clerks 
dying in harness if the accumulated deferred pay of a clerk was 
then turned over to his family. Their interest in this phase of the 
problem was what might be expected, in view of the arguments 
and representations made by the committee of civil servants in 1856. 
It will be remembered that what a large number of them asked for 

"Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 382. 
b Idem, p. 385. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 131 

most earnestly at the time the pension plan was established was not 
that the deduction be abolished, but that half of it be remitted 
and the other half collected into an insurance fund for the benefit 
of their dependents. Wliat they had criticised in the old contrib- 
utory system established by the Act of 1834 was the fact that it 
made no provision for their widows and orphans and took contribu- 
tions that might otherwise have bought insurance for them. 

Representing the assistant clerks at the Board of Trade, Mr. S. 
Bullock and Mr. A. Barnes stated that they considered pensions as 
deferred pay and were incHned to agree with Sir Robert Hamilton's 
memorandum. ''It proposes, '^ said Mr. Barnes, ''that a proportion 
of the salary should be deducted, and that the salary so put aside 
should be available, in the case of the death of the civil servant, for 
his representatives. That seems much fairer than the present sys- 
tem." Asked if he thought that the service would in that case be 
unpopular with good men, if the salaries were fixed, including the 
additions, at figures lower than those then paid, Mr. Bullock re- 
plied: "I believe it would be a great advantage, and that it would be 
received with great satisfaction." 

Messrs. J. W. Curra, C. G. Hawkes, and C. D. Upham, representing 
clerks in the Post-Office, said that after carefully reading the state- 
ment by Sir Robert Hamilton, they, "as lower division clerks, and 
young men having lately entered," would "very much like to see 
some scheme such as that proposed in operation rather than the 
present one." Mr. Hawkes stated that they were in favor of a lump 
payment in lieu of a pension because under the existing system, 
"however hard' a man is worked, however much he deserves his pen- 
sion, if he dies in harness his friends get not a halfpenny." He 
thought, however, that the deductions for the lump sum on retirement 
should be paid by the Treasury. Mr. Upham stated that their sal- 
aries would not permit any deductions toward pension, maintaining 
that civil servants were not so well paid as men in commercial circles. 

Mr. E. T. A. Kennedy and Mr. T. W. McCormick, representing 
clerks in the Inland Revenue Office, saw no objection to deductions 
from salaries being made toward a pension fund if salaries were made 
sufficiently large to bear it. They were averse to any further deduc- 
tions, but if a new scheme were adopted by a supplemental provision, 
such as Sir Robert Hamilton suggested, of 20 per cent in the esti- 
mates, they thought that a great many of the civil servants would 
be prepared for a deduction. "At any rate," said Mr. McCormick, 
"their legal representatives could take that on their death, and that 
would obviate the great hardships that now exist of the wife being 
left helpless on a man's death." 

It was not only the low-salaried clerks of the service who main- 
tained that the existing pension system worked a hardship on their 



132 CIVIL-SEEVICE KETIREMENT IN GEEAT BRITAIN, 

families, if they happened to die in office. Sir Algernon West, a 
high administrative officer, said: 

It is very curious tliat the State is extraordinarily liberal to its 
servants in every way but one. For instance, with my service, I 
might have a year's leave. I might have six months on full pay and 
six months on half-pay if my health was to fail. I call that extraor- 
dinary liberality. But on the other hand, if in the height of my 
work I was to die, from that hour my pay would cease; that I do not 
think liberal, because I always think it is impossible that a man's 
expenses can cease from the moment of his death, and therefore I 
have always thought that a little bit of illiberality on the part of the 
Government. It is the only little bit I know, I am bound to say.(") 

The last witnesses to appear before the commission in regard to the 
subject of superannuation were Messrs. T. T, S. de Jastrzebski and 
Henry Day, who represented the general body of the lower division 
clerks and had been requested by the general committee of that body 
to present the views of the lower division clerks to the commission. 
In view of the fact that the superannuation acts of 1859 and 1887 
provided free and universal pensions on a most liberal scale for all 
permanent civil servants besides gratuities for many employees not 
classified as permanent, the earnest request of this large body of 
clerks that the pension system be abolished and that they be allowed 
to contribute to their retirement is surely very astonishing. There 
seems to be no record, on the other hand, that any representative 
of the public service appeared before the commission to dispute the 
claim so generally made that the clerks were already practically con- 
tributing to their pensions. Said Mr, Day: 

There is a very strong feeling, not only in the lower division but 
throughout the general service, especially when there is anything 
like a stagnation of promotion, that the Act of 1859 is certainly inad- 
equate in its provisions. Having searched through many of the rail- 
way companies and banks, in respect to their pension systems, we 
come, as lower division clerks specially, to the conclusion that their 
systems are more liberal and sufficient and much more fitting the 
needs of their clerks than what the Act of 1859 does for the junior 
civil servant. 

"Would you be willing to take the London and Northwestern 
scheme?" he was asked, and made the following answer: 

No, I would offer the best points of all schemes for such a class of 
men as the junior civil servant, that is, (1) I would ask for optional 
commutation of all pensions; (2) I would ask for the balance of the 
unabsorbed deferred pay after a man had been superannuated but 
had not exhausted his fund; (3) I would ask for the deferred pay of 
the clerk dying in harness being paid to his representatives; and (4) 
I would ask for the deferred pay to be made to a man retiring volun- 
tarily after ten years' service. C*) 

« Second Report of Commission on Civil Establishments. 1888. Minutes of evi- 
dence, p. 255. 
&Idem, p. 412. 



CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 



133 



Asked what conditions he coupled with that in the way of deduc- 
tions from salary, Mr. Day said that he thought the lower division 
clerk would gladly pay his contribution and that he understood 2^ 
pec^ cent was deemed necessary from the employees in the case of 
the various railway companies providing half the money. 

Growing Cost of Civil Pensions, 

The cost of superannuation was naturally a question into which 
the Ridley Commission inquired. Valuable data on this subject were 
supplied them by Sir Herbert Maxwell and Mr. Mowatt. Sir Her- 
bert showed the growth of the civil service vote for superannuation 
from the years 1833-34 to 1868-69 by the following table :(«) 



Year. 


Amount. 


Year. 


Amount. 


Year. 


Amount. 


183a-34 


$272,363 
286, 432 
322,250 
359,659 
386,079 
404,951 
427, 206 
442,608 
399,053 
408, 786 
395, 646 
417,546 


1845-46 


$390,780 
393,213 
424,359 
375,694 
535,884 
529,319 
526,580 
658,725 
647, 147 
660,734 
674, 541 
713, 122 


1857-58 


$777,871 


1834-35 


1846-47 


1858-59 


792, 699 


1835-36.. 


1847-48 


1859-60 


812, 652 


1836-37 


1848-49 


1860-61 


864, 840 


1837-38 


1849-50 


1861-62 


900, 984 


1838-39 


1850-51 


1862-63 


898,872 


1839-40 


1851-52 


1863-64 


858, 752 


1840-41 


1852-53 


1864-65 


902, 585 


1841-42 


1853-54 


1865-66 


872,963 


1842-43 


1854-55 


1866-67 


904, 624 


1843-44 


1855-56 


1867-68 .*. 


958, 871 


1844-45 


1856-57 


1868-69 


1,337,640 











As explained on page 30, the cost of superannuation in the Reve- 
nue Departments, the Admiralty, the War Office, and the Royal 
Irish Constabulary was not included in the civil service vote after 
1832. In 1868-69 a number of noneffective charges were transferred 
from various effective votes to the superannuation estimate. After 
1869-70 the appropriation accounts as given by Sir Herbert Max- 
well were as follows : {"-) 



Year. 


Superan- 
nuation 
allowances. 


Compensa- 
tion 
allowances. 


Compas- 
sionate 
allow- 
ances. 


Compensa- 
tion and 
compas- 
sionate 

allowances. 


Gratui- 
ties. 


Total. 


1869 70 


$802,530 
851, 190 
912, 177 
948,724 
1,014,023 
1,050,964 
1,089,449 
1,106,856 
1,136,269 
1,160,140 
1,178,837 
1,238,018 
1,263,450 
1,262,536 
1,279,734 
1,321,269 
1,356,736 


m 

(6) 
C) 

m 
m 

$1,065,150 
977,402 
962,599 
938,904 
905, 140 
891,791 
892,297 
876, 160 
851,535 


(6) 

m 

C) 

c) 

$14,264 
15,349 
15, 680 
17,320 
18, 824 
18,984 
19,850 
19,266 
17,568 


$818,467 

971,626 

1,062,809 

1,05.5,422 

1,061,826 

1,030,224 

1,002,752 

1,029,425 

1,079,414 

992, 751 

978,279 

956, 224 

923,964 

910,775 

912, 147 

895, 426 

869, 103 


$5,742 
77,226 
25, 402 
28,260 
18,483 

9,392 
11,373 

6,346 
14,132 
12, 565 
13,592 
14,089 
11,782 
11,816 
12,687 
11,972 
13,315 


$1,622,798 


1870-71 


1,900,042 


1871-72 


2,000,438 


1872 73 


2,032,406 


1873-74 


2,094,332 


1874 75 


2,090,600 


1875-76 


2, 103, 574 


1870-77 


2,142,627 


1877 78 


2,229,815 


1878-79 


2, 165, 456 


1879-80 


2,171,194 


1880-81 


2,208,330 


1881 82 


2,199,449 


1882 83 


2, 189, 735 


1883 84 


2,204,508 


1884-85 . 


2,228,667 


1885-86 


2,239,155 







a Second Report of Commission on Civil Establishments. 
b Not separately reported. 



1888. Appendix, p. 422. 



134 CIVIL-SEE VICE EETIREMENT IN GREAT BEITAIN. 

For the year 1887-88 Sir Herbert stated that a vote of £476,082 
($2,316,853) was taken in the civil service estimates for super- 
annuation and. retired allowances, besides £1,412,622 ($6,874,525) 
provided for superannuation in the estimates of the several depart- 
ments. Thus the total sum voted for superannuation of public ser- 
vants (exclusive of military and naval pensions) was £1,888,704 
($9,191,378). It is not clear from Sir Herbert's statement whether 
this sum included allowances to the Royal Irish Constabulary and 
the Dublin Metropolitan Police or not, but comparison with Mr. 
Mowatt's statement of the cost of civil pensions for the following 
year, 1888-89, would seem to indicate that it did. Mr. Mowatt's 
statement shows that the total sum voted for the superannuation of 
public officers in that year amounted to £1,907,863 ($9,284,615), 
including the Royal Irish Constabulary and Dublin Metropolitan 
Police, and to £1,581,992 ($7,698,764) excluding them. Besides 
this great sum voted by Parliament for that year, civil pensions to 
the amount of £345,517 ($1,681,458) were granted out of the con- 
solidated fund, which would make a total expenditure of £2,253,380 
($10,966,073) lor civil pensions. 

Report of the Commission. 

The report made by the Ridley Commission on the subject of 
superannuation in the civil service, as the result of its investigations, 
contained recommendations that have not been perpetuated in legis- 
lative enactments, but the report is nevertheless significant and valu- 
able to the student as marking the development of certain ideas in 
England, in regard to the subject of pensions for civil servants, and 
it is well worthy of study. ('*) 

After first stating that the vote for superannuation and retired 
allowances in the year 1888-89 amounted to a gross total of £1,581,992 
($7,698,764.07), exclusive of £671,388 ($3,267,309.70), paid for pen- 
sions to the Royal Irish Constabulary, the Dublin Metropolitan 
Police, and other pensions charged on the Consolidated Fund, the com- 
missioners reviewed the arguments advanced by the Commissioners 
of 1857, from the public point of view, against the contention that 
the only duty of the Government should be to pay adequate salaries, 
and leave its servants to make proper provision for their own future 
wants and those of their famihes, and concluded, like their prede- 
cessors, that, in spite of the heavy charge, public interest would be 
''best consulted by maintaining a system of superannuation allow- 
ances." They then took up the proposal of Sir Robert Hamilton 
that the pension system be abolished altogether by voting each year 
the whole additional sum which represents the calculated charge 

o See Report of Ridley Commission on Superannuation, pp. XIX-XXV. 



• CIVIL-SERVICE RETIREMENT IK GREAT BRTTAHsT. 135 

entailed by the present pension scale, investing it separately in a 
government fund, the amount of each member's deferred pay, with 
compound interest, to be returned to him or his representatives on 
his separation from the service. 

Rejection of Sir Rohert HaTnilton's proposal. 

To this proposal the commission saw "fatal objections." Said 
they: 

We can not accept the conclusion that the present pension is 
deferred pay in any such sense as that, whereas it is now terminable 
with the pensioner's life, its capitalized equivalent should go to his 
representatives, and this as a mere addition to the present heavy 
charge, with no corresponding benefit to the public in the shape of a 
contribution by a civil servant, or otherwise. 

And whatever might be the proportion fixed between what should 
be regarded as deferred pay and the actual working salary, the 
immediate addition to the annual estimates would be very large; 
and seeing that these estimates now bear the noneffective charges 
imposed by the action of past generations, it would hardly be tolerated 
that they should also bear the burdens of the future. 

The payment, moreover, of a lump sum is open to the obvious 
objection that in the event of improvidence or misfortune in the use 
of it, the retired public servant may be reduced to circumstances 
which might lead to his being an applicant for public or private 
charity. {"') 

Recommendation that deductions he made from salary. 

Recognizing, however, that Sir Robert Hamilton's proposal had the 
two special advantages so strongly urged by officials and clerks of 
the service who had appeared before them, namely, that it would 
assist in the dismissal of the inefficient and afford relief to the families 
of clerks dying in the harness, they proposed to gain such advantages 
by deducting five per cent from the salaries of all employees, and 
returning it with compound interest on the separation of the employee 
from the service. 

Their recommendation to this effect is thus set forth: 

With a view both of levying some direct contribution from the 
civil servant towards his pension, and of providing at the same time 
a sum of money which, in the event of a man's death or retirement 
without pension, should be available for his representatives or for 
himself, we recommend a compulsory deduction of 5 per cent from 
all future salaries. An account should be kept in favor of each clerk, 
and in the event of his dying or leaving the service voluntarily or 
otherwise, before becoming entitled to a pension, he, or his repre- 
sentatives, * * * should receive back the whole of his con- 
tributions, with the addition of compound interest at the rate 
allowed by the Post-Office Savings Bank. 

o Second Report of Commission on Civil Establishments. 1888. Report, pp. XX 
and XXI. 



136 CIVIL-SEE VICE RETIREMENT IN GREAT BRITAIN. 

We thinl?: also that, while it would entail a very small extra 
charge upon the State, it would be fair and reasonable to provide 
that, in the event of the death of any pensioner before the total 
amount received as pension has reached the whole of the sum deducted 
from him during his serivce, his representatives should receive a sum 
equal to the difference between such total deductions and the amount 
received as pension. 

It might be provided that the whole salaries should be voted an- 
nually, and the 5 per cent deductions be placed to a separate fund in 
the hands of the National Debt Commissioners, the amount due, as 
above, to each clerk, being secured to him by act of Parliament and 
being paid to him on the determination of his service. Under such 
an arrangement the State would, of course, have to receive in some 
form or other the sum standing to the credit of every person who 
becomes entitled to a pension. 

On the other hand, it might be decided not to invest these deduc- 
tions separately or to create any fund. The salaries might be voted 
annually less the 5 per cent, the estimates of each year receiving the 
advantage of the deductions and the State being liable (as under the 
other arrangement) for the amount of them, whenever they became 
due, or, in the event of a pension being attained, for the amount of 
such pension, towards which it would have received such deductions 
in relief. 

If this whole charge, taking into consideration the conditions and 
regulations which we recommend, be actually calculated, it will be 
easy to determine the liabilities of each year. These liabilities in 
respect of new servants will, of course, increase annually, but they 
will ultimately be very much less than the present noneffective 
charges. C'^) 

This means that the commission recognized the truth of the state- 
ment that "pension is deferred pay," but that they repudiated the 
idea that the deferred pay should be returned to the civil servant in 
any other way than as a pension. They took the stand that the 
deferred pay was practically the same as a premium paid to a life 
insurance company for the purchase of a deferred annuity on the 
condition that if death occurred prior to the beginning of the annuity 
the premiums paid would be forfeited to the company. They held 
that this deferred pay of the civil servants was only sufficient to pro- 
vide the pension for those who survived to pensionable age and that 
if a refund of contributions was desired — and they appreciated the 
advantages of such a refund — an additional contribution would be 
necessary. In the same way the premium paid to a life insurance 
company for the purchase of a deferred annuity on the condition that 
if death occurs prior to the pension age the premiums paid will be 
returned must be larger than if the annuity is purchased on the con- 
dition that the premiums will be forfeited to the company in case of 
death. The commissioners recommended, therefore, that in order 

o Second Report of Commission on Civil Establishments. 1888. Repor*, pp. XXI 
and XXII. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN, 137 

to secure this desirable refund a compulsory deduction of 5 per cent 
be made from all future salaries. They argued that the compulsory 
saving of 5 per cent of salaries would not only furnish some assist- 
ance in the elimination of the inefficient from office and relief of de- 
ceased employees' families, but it would have the additional advan- 
tage of lightening to that extent the heavy charge on the State for 
payrnent of superannuation allowances. The plan they proposed 
was, in effect, a return to the old contributory plan established by 
the Act of 1834 and abolished in 1857 with the important difference 
that provision was made for a refund of contributions in case of death 
or resignation before the servant reached the pensionable age. The 
idea of funding the contributions was expressly repudiated, the logic 
employed by the Commissioners of 1857 in regard to that question 
being accepted as good. 

Minor recoTnmendations. 

This recommendation constituted the gist of the Ridley Commis- 
sion's report on the subject of superannuation in the civil service, but 
other important minor recommendations were also made. "With 
an eye to the injustice of having the pension system the spoil of the 
inefficient," they condemned clause 2 in the bill passed the previous 
year (the Superannuation Act, 1887) which gave power to the Treas- 
ury to grant retiring allowances to persons removed from office on 
the ground of their inability to discharge their duties efficiently. 
They recommended also the immediate repeal of clause 7 in the Act 
of 1859 which gave a compensation allowance to those retired on the 
pretext of ''abolition of office." They took the view that any large 
reorganization of an office or offices should invariably be carried out 
by means of an act of Parliament, or at least by provisional orders in 
council approved by Parhament, and that the abolition of a single 
appointment should be effected by transferring the officer to another 
department, if possible^ or by attaching other duties to him tempora- 
rily, or by not filhng the vacancy when it occurred by promotion or 
otherwise. 

The two reforms so frequently urged — compulsory retirement at a 
given age and calculation of the pension on the average instead of the 
final salary received the commission's careful consideration. With 
the Superannuation Commission of 1857 and the Select Committee 
of 1873 they agreed that it was absolutely essential to fix an age for 
compulsory retirement. They suggested 65 as the age. Said they: 

There should be no exception to this rule, except in the case of 
certain scheduled offices, in which the officer if asked by the Govern- 
ment to do so, might be allowed to extend his services for a further 
period never exceeding five years. 



138 CIVIL-SEEVICE BETIEEMENT IK GKEAT BRITAIN. 

It should be clearly understood that at the age of 60 a man may be 
required to retire by the head of his department upon such pension 
as by his length of service he is qualified to receive. He may, if he 
pleases, retire voluntarily, at this age, and the State should have the 
corresponding power of retiring him, if it be for the advantage of the 
service. C^) 

The proposal to calculate the pension upon the average salary dur- 
ing the whole period of service instead of upon the average salary of 
the last three years did not meet the entire approval of the commis- 
sion, and they recommended that it be calculated instead on the last 
ten years' service. Said they: 

We have satisfied ourselves that to calculate the amount upon the 
average salary throughout service would result in a reduction of 
pensions to an extent that would be altogether inexpedient, and 
we think, on the whole, that the case will be met by fixing the pension 
in proportion to the average salary of the last ten years of service. 
We do not propose any alteration in the existing scale of pensions, 
viz, for each completed year of service 1/60 of the civil servant's 
salary, subject to a maximum of 40/60, no pension being in any case 
awarded for less than ten years' service. (^) 

In this recommendation they were undoubtedly infiuenced by the 
contention of Sir Reginald Welby, when before them, that to calcu- 
late pensions on mean salaries instead of salaries ultimately attained 
to would cause too great a reduction in the pensions and might lead 
to a movement for increase of salaries, already a very difficult thing 
to control. He was of the opinion that the case might better be 
met by an extension of the number of years upon the average salary 
of which pensions are now calculated, and the commission appears 
to have shared his views. 

The award of a pension for life after a service of only ten years 
was justified by the commission as right and politic, since it must at 
best be small, beginning at one-sixtieth of the salary, and could only 
be awarded in the case of a real and permanent breakdown of health. 
The Government is further protected, too, in the matter of disability 
allowances by requiring candidates for office to pass a strict medical 
examination. 

The provision enabling a higher pension to be given for professional . 
offices by adding a number of years to the actual service years was 
condemned by the Ridley Commission. Said they: 

This was intended to meet the case of men coming into the service 
at a somewhat advanced age, and with special acquirements. But, 
in our opinion, such a man is better remunerated by a sufficient salary 
which, being an immediate charge, is likely to receive greater atten- 
tion than a prospective addition to pension, and we see no reason 
why the pension should bear a higher proportion to the salary in these 

a Second Report of Commission on Civil Establislimenta. 1888. Report, p. xxiii. 
^Idem, p. xxii. 



CIVIL-SEEVICE RETIEEMENT IN GEEAT BEITAIN. 139 

cases than in others. If our proposal, too, is adopted of taking the 
average of the salary for the last ten years as a basis, an officer who 
has earned a high and non-progressive salary will get the advantage 
to which he is entitled. ('*) 

In closing their report on superannuation the commissioners thus 
summed up the benefits which they believed would follow the adop- 
tion of their recommendations: 

If the above conditions are enforced, we believe that the pension 
system so amended will be equitable alike to the State and to the 
public servant. 

The pension, though less in amount than at present, in consequence 
of its being calculated on the average salary of the last ten years of 
service, will yet in our opinion be adequate, and the public servant 
will have contributed something towards the charge. He will at the 
same time be secured the return of the whole of his contributions 
with compound interest in the event of his not coming on to the 
pension list. , 

The State, on the other hand, will be relieved from the heavy pay- 
ments under the head of compensation allowances which it now has 
to bear, it being calculated that if these are omitted the charge for 
superannuation would be from 12 to 15 instead of 20 per cent, as at 
present, on working salaries. The State will also not only pay pen- 
sions at a lower rate, as explained in the preceding paragraph, but 
will also have received in aid of such reduced pensions a contribution 
of 5 per cent from the salaries of all those who become entitled to 
superannuation. {^) 

Criticism, of the commission's chief recommendation. 

While a casual reading of this report of the Ridley Commission 
gives the impression that a very plausible solution of a difficult prob- 
lem for a country burdened with a heavy pension charge is here offered, 
more careful study shows that two important points were entirely 
overlooked by the commissioners when they made their chief recom- 
mendation. They neglected to consider, when they contemplated 
the cost of putting the plan suggested by Sir Robert Hamilton into 
operation, and condemned it on the score of costliness, the important 
part played by compound interest in all such calculations. In the 
second place, they failed to see that their proposal to make a deduc- 
tion of five per cent of salaries to be refunded, but only in case of 
death or resignation before reaching pensionable age, coupled with 
the assumption that pension is deferred pay, was distinctly unfair to 
the civil servant who lived to pensionable age. 

Sir Robert Hamilton's proposal that for every £100 ($486.65) paid 
a civil servant £20 ($97.33) should be deposited to his credit in the 
government savings bank was presumably based on the assumption 
that the amount of deferred pay was 20 per cent of salary. It has 

a Second Report of Commission on Civil Establishments. 1888 Report, p. xxiii. 
t> Idem, p. XXV. 



140 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

been shown that this assumption had its origin in the statement of 
an actuary in 1869 that the normal cost to the State of existing pen- 
sions was 20 per cent of past salaries, including compensations, or 12 
to 15 per cent excluding compensations. 

Sir Robert Hamilton overlooked the fact that much less than 12 or 
15 per cent of present salsnies— probably not more than from 7 to 10 
per cent would have to be set aside to pay for future pensions, owing 
to the fact that interest would be compounding during all the years 
the sum for the pension was accumulating. Sir Herbert Maxwell 
made the same error, as has been pointed out, in stating to the com- 
mission that ''the contributions which would have to be levied from 
pay and salaries to support a fund for the payment of superannuation 
on the present scale and conditions, has been variously estimated at 
from 12^ to 16 per cent." 

It is clear that the establishment of the plan suggested by Sir 
Robert Hamilton would have meant a temporary increase in the 
already heavy charges paid for pensions, and on that ground alone 
the commissioners were unwilling to recommend it. Neglecting to 
take into consideration the operation of compound interest, they did 
not perceive the increase in the estimates would have been an increase 
of from 7 to 10 per cent only instead of from 12 to 20 per cent. This 
would have amounted virtually to an increase of that much in the 
general rate of salaries, but would have resulted finally, by the time 
all employees in the service at the time of the establishment of the 
plan were dead^ in the complete abolition of the pension system and 
the full operation of a self-supporting savings scheme. Unfortu- 
nately for the success of his ideas with the commission. Sir Robert 
laid down principles merely, worked out no details to show how the 
principles should be applied, and had no statistics of the existing 
civil service to demonstrate how the cost of establishing his plan, 
although large, would be a saving in the long run, since a general 
increase in salaries of from 7 to 10 per cent must be much less than the 
total vote for pensions. 

The proposal made by the commission in lieu of Sir Robert's plan 
was not fair to the employees for this reason: The commission 
admitted that the employees were already in fact suffering a deduction 
equal to the value of the pure pension without return of premiums; 
to withhold an additional five per cent of salaries on the condition 
that, if the employee entered on the pension which he had already 
theoretically paid for, the five per cent actually withheld from his 
salary should go to the State to reduce the cost, and in case of death 
only such portion of the five per cent accumulations should be 
refunded which had not been paid to him in pensions, was equivalent 
to requiring the employee who entered on a pension to pay for a pure 



CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. 141 

deferred annuity on the scale provided for by law and then in addition 
to provide for the purchase of a second annuity (which was never 
granted him) by contributing five per cent of his salary throughout 
the whole term of his service. (®) 

SUPEKANNUATION ACT OF 1887. 

The superannuation act which had been passed in 1887 while the 
Ridley Commission was investigating the civil establishments of the 
United Kingdom made provision for certain classes of civil servants 
not provided for by the Act of 1859. Mention has already been 
made of the provision contained in clause 2 for the retirement of 
inculpable inefficients and the disapproval of this clause expressed 
by the Ridley Commission. 

Pensions to civil servants compelled to retire in consequence of an 
injury sustained in the actual discharge of duty without their own 
default are granted under clause 1 of the act. Pensions are also 
awarded under this same section to the widows and children of civil 
servants killed in the execution of their duty. The scale of pensions 
is fixed in each case by treasury warrant. This clause constitutes a 
repeal of section 5 of the Act of 1859, being more liberal in its terms. 

The allowances granted to public servants under this section in 
case of injury are calculated in the Treasury warrant regulating the 

« To illustrate just what this proposal would mean, take a concrete case, and for sim- 
plicity of illustration suppose the salary paid in American money. Let the case be 
that of a person entering the service at 20 years of age, having a salary of $100 a month, 
and retiring at the age of 60 on a pension of $720 a year. The value of such a pension, 
payable quarterly, beginning at the age of 60 may be stated as $7,787. Therefore, 
under the provision proposed by the Ridley Commission that, in addition to the theo- 
retical deduction which he was already making to provide this $7,787, the employee 
should also contribute 5 per cent of salary during his period of service, the result 
would be as follows: 

That he had purchased a deferred annuity, by theoretical deductions, having a 
value of $7,787, and that he had, by actual deductions of 5 per cent of salary improved 
by 3J per cent interest during a period of 40 years, purchased another deferred annuity 
having a value of $5,169, so that in the aggregate, theoretically and actually, he had 
contributed $12,956 to purchase a pension the value of which under any of the condi- 
tions laid down was to the employee but $7,787. In case he accepted the pension 
he would forfeit all of his $5,169 except such excess as might remain at his death over 
and above the amount of pension which he might have received, or if he resigned the 
day before the pension began, he would receive a refund of $5,169 and forfe-'< his 
pension having a value of $7,787, so that under only one condition would he have 
been fairly treated by the plan proposed by the commission and that would have 
been in case of death prior to the date of retirement, when his own accumulations 
with interest would have been returned. The only way then in which the commis- 
sion's proposal could have been made fair to the civil servant would have been by a 
general increase of 5 per cent in salaries to correspond to the 5 per cent deduction. 
If this had been done the practical result, however, would have been the same as 
under the plan suggested by Sir Robert Hamilton. 



142 CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 

grants on three different scales. The first apphes to estabhshed 
officers of prisons or criminal lunatic asylums injured by the violence 
of a prisoner or lunatic; or established officers of a manufacturing 
department of the War Office or Admiralty in which the duties are 
exceptionally dangerous. The second applies to all established 
civil servants not falling under the above description and all hired 
persons whose duties are exceptionally dangerous. The third scale 
applies to all other hired persons employed in a public department. 
When his capacity to contribute to his support is totally destroyed, 
a member of the first class receives twenty-four-sixtieths of his 
salary, a member of the second class twenty-sixtieths. When his 
capacity to contribute to his support is materially impaired, a member 
of the first class receives eighteen-sixtieths of his salary, a member of 
the second class fifteen-sixtieths. When his capacity to contribute 
to his support is simply impaired, a member of the first class receives 
twelve-sixtieths of his salary, a member of the second class ten- 
sixtieths. When his capacity to contribute to his support is but 
slightly impaired, a member of the first class receives six-sixtieths of 
his salary, a member of the second class five-sixtieths. This is with 
the proviso that no award on the first scale, together with the allow- 
ance for which the injured man would be qualified by length of 
service, shall exceed the amount of his salary or £300 (SI, 459.95) a 
year, whichever is less, and that no award on the second scale together 
with similar allowance shall exceed fifty-sixtieths of his salary, or 
£300 ($1,459.95) a year, whichever is less. 

For hired persons employed in a public department, constituting 
the third class affected by this injury warrant. Scale III provides a 
gratuity of one- third of the employee's salary if his capacity to con- 
tribute to his support is slightly impaired, two-thirds if it is impaired, 
and the whole amount of his salary if it is materially impaired, or else 
£100 ($486.65), whichever is less. Wlien the injured man's capacity 
to contribute to his support is totally destroyed he receives an annual 
allowance exceeding by fifteen-sixtieths of his salary and emoluments 
the rate of retired allowance for which he would have been qualified 
by length of service if he had been a civil servant, provided that the 
total award does not exceed forty-five-sixtieths of his salary, or £300 
($1,459.95) a year, whichever is less. 

Provision is also made by this Treasury warrant for the widows (or 
mothers) and children of the men of these three classes who are killed 
while in the discharge of duty. Widows of men pensioned on the 
first and second scales receive not more than ten-sixtieths of the 
husband's salary, and widows of n^en classified under the third scale 
receive not more than eight-sixtieths. Children of the first class are 
pensioned until the age of fifteen years. Children of the second and 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 143 

third classes receive small gratuities, the total gratuity for each fam- 
ily ranging from £8 to £50 (S38.93 to $243.33). C^) 

A gratuity of £1 (S4.87), or one week's pay for each year of service, 
is paid under clause 4 of the act, on retirement, to persons not form- 
ing part of the permanent civil service but engaged temporarily. 
Those who have the benefit of this provision include a great many 
hired laborers of the dockyards serving under the War Office. 

LAW UNDER SUPERANNUATION ACTS OF 1834, 1859, 1887. 

A paper prepared for the information of the Ridley Commission in 
1888 by Sir Reginald Welby gives a complete survey of the pro- 
visions of the three great superannuation acts in force, the acts of 
1834, 1859, and 1887. The paper is here reproduced: C) 

1. The grant of superannuation allowances to persons in the per- 
manent or established civil service of the Crown is regulated by the 
Acts — 

4 & 5 Will. 4. c. 24. (Superannuation Act of 1834) 
22 Vict., c. 26. " " " 1859 

50 & 51 Vict., c. 67. " " " 1887 

For practical purposes the two latter statutes only need be con- 
sidered. The greater portion of the Act of Will. 4. has been repealed, 
and the sections which are still in force are of an unimportant char- 
acter. 

2. In order to qualify a civil servant for the grant of superannuation 
allowance, he must — 

(a) if appointed since the passing of the Act of 1859, have been 
admitted to the service with a certificate from the civil service com- 
missioners, or hold an office specially excepted from this requirement; 

(b) have given his whole time to the public service; 

(c) draw the emoluments of his office from public funds exclusively; 

(d) have served for upwards of 10 years; 

(e) if under the age of 60, be certified to be permanently incapable 
from infirmity of mind or body from discharging his official duties ; or 
have been removed from his office on the ground of his inability to 
discharge his duties efficiently. 

(J") be certified to have served with diligence and fidelity to the 
satisfa(;tion of the head of his department. 

3. The scale of superannuation allowance is, for each completed 
year of service, 1/60 of the emoluments enjoyed by the civil servant at 
the date of his retirement, subject to a maximum of 40/60. If the 
civil servant has not held his office for three years, then the pension is 
calculated upon the average of his emoluments during the last three 
years. 

Extra pension is granted to civil servants living in official houses. 
For the purpose of such pension the value of a house is reckoned at 

''For warrant regulating the grant of gratuities and allowances under section 1 of 
the Superannuation Act, 1887, see Appendix IV. 

& Second Report of Commission on Civil Establishments. 1888. Appendix, pp. 
415 and 416. 



144 CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 

one-sixth of the resident's salary, but in order to establish claim to 
pension in respect of a house it must be shown that income tax has 
been paid upon the house. 

4. Pensions may be granted at a reduced rate if the misconduct or 
demerits of the officer appear to the Treasury to justify such a reduc- 
tion. 

5. Pensions may also be granted in excess of the usual scale — 

(a) if the retiring civil servant has rendered any special services in 
the course of his career. 

Such awards are of very rare occurrence, and are only made when 
the special services have been extraordinary in kind, and such as 
could not be considered as falling within the scope of the officer's 
ordinary duties. 

(b) if the civil servant is compelled to retire in consequence of an 
injury sustained in the actual discharge of his duty, without his own 
default, and specifically attributable to the nature of his duty. The 
scale of such pensions is prescribed by a warrant made under s. 1. of 
50 & 51 Vict., c. 67. A special pension can in no case exceed the* 
amount of the annual emoluments of the office from which the civil 
servant retires. 

(c) if the civil servant has served in a place which has been de- 
clared by the Treasury, under 39 & 40 Vict., c. 53, to be an ''unhealthy " 
place. In such cases two years' service counts as three. 

6. A higher pension than could be obtained by the scale mentioned 
in par. 3 can also be awarded to the holders of offices requiring pro- 
fessional or other peculiar qualifications not ordinarily to be acquired 
in the public service. The amount of the pension in such cases is 
arrived at by adding to the years of the officer's actual service a num- 
ber of years varying with the nature of the office and the amount of 
time which may be expected to be necessary to qualify the holder for 
the due discharge of its duties. 

7. When a civil servant is compelled by ill health to retire before he 
has completed ten years' service, he may receive a gratuity of one 
month's pay for each year of service. 

8. Any pensioner under 60 years of age may, if his health permits 
it, be required to serve again in any position for which his previous 
services may render him eligible. 

9. If a civil servant is killed in the execution of his duty, a pension 
may be awarded to his widow and children, the amount of which is 
regulated by the warrant referred to under par. 5 (b). 

10. A civil servant whose office is abolished, or who is compul- 
sorily removed from the service, in order to facilitate arrangements 
by which greater economy and efficiency may be secured, may receive 
a compensation allowance, calculated on the same scale as if he were 
qualified for a pension (see par. 3), but with the addition to his actual 
service of a number of years varying with the length of such service, 
as follows: 

Under 5 years' service, addition of 1 year. 
Above 5 and under 10, addition of 3 years. 

10 and under 15, addition of 5 years. 

15 and under 20, addition of 7 years. 

20, addition of 10 years. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 145 

11. Persons not forming part of the permanent civil service, but 
engaged temporarily, are not entitled to superannuation allowance, 
but receive on retirement or discharge a gratuity of £1 [$4.87] or one 
week's pay, for each year of service. 

If, however, such a person is injured or killed in the discharge of 
his duty, a pension or gratuity may be awarded to him or his rela- 
tives as provided in the warrant referred to in par. 5 (b). 

12. It should be added that the members of the diplomatic service 
and the members of the Royal Irish Constabulary are entitled to 
pensions calculated according to the rates laid down in the Acts 32 
& 33 Vict., c. 43 and 46 Vict., c. 14, respectively; and that the award 
of pensions to the holders of certain high political offices is provided 
for by 32 & 33 Vict., c. 60. Pensions are also granted under special 
acts, 1865, 1872, and 1887 to colonial governors. 

Note. — The -Act 4 & 5 Will. 4, c. 24 directed that a deduction should 
be made from the salaries of civil servants who entered the service 
after the 29th August, 1829, as a contribution towards pension; this 
deduction amounted to 2§ per cent on salaries under £100 [$486.65], 
and to 5 per cent on salaries of £100 [$486.65] and more. The deduc- 
tion was abolished by the Act 20 & 21 Vict., c. 37. 

It will be noted that the first qualification for a pension is the 
possession of a civil service certificate. That is a document issued 
by the Civil Service Commissioners certifying to the age, health, char- 
acter, and education or other personal qualifications of the individual 
who receives it. A person may be an employee of the Government 
and not be pensionable, but as soon as he becomes "established," as 
the phrase is, he becomes pensionable. This occurs on examination 
or on appointment by the head of the department and the issue of 
the civil service certificate. In several branches, especially in the 
dockyards, there are a great many persons regarded as servants who 
are not established, but who may, after a time, become so. It is 
interesting to note that before issuing a certificate the Civil Service 
Commission subjects the candidate to a severe physical examination 
in order to lessen the chances of his early application for pension. 

There are two exceptions to the rule requiring pensionable mem- 
bers of the public service to have certificates from the Civil Service 
Commission. Officers appointed directly by the Crown, as for 
instance, some commissioners and heads of departments, are ex- 
empted from the necessity of holding certificates from the Civil 
Service Commission. Officers appointed for their special professional 
qualifications are also exempted from the necessity of having certifi- 
cates from the commission by virtue of Section IV of the act, which 
says that persons of "professional or other peculiar qualifications" 
may be entitled to superannuation, though they may not hold their 
appointments directly from the Crown, and may not have entered 
the service with a certificate from the Civil Service Commissioners. {"■) 

a See Sec. IV, Act of 1859, Appendix II. 
35885— S. Doc. 290, 61-2 10* 



146 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 

The qualifications that the pensioner must have given his whole 
time to the public service and been paid out of public funds do not 
exclude any persons who would ordinarily be regarded as civil servants. 
The first excludes, for instance, auxiliary or supernumerary postmen, 
who may be cobblers or blacksmiths by trade and choose to eke out 
their incomes by devoting certain hours of the day to the distribu- 
tion of the mail, having only one or two deliveries. 

If the qualification in regard to the indorsement from the head of 
the department is not complied with, the full amount of the pension 
is not granted the civil servant. The Treasury makes a reduction 
according as the circumstances of the case may seem to warrant. A 
principal clerk of the Treasury before the Courtney Commission in 1903 
said: "There are a fair number of cases in which a small deduction 
is made, say, not more than ten per cent. The cases in which a 
greater deduction than that is made are rare." 

The fifth qualification as to length of service is very specific. The 
service must not be less than ten years, unless the holder retires on 
abolition or reorganization of office. 

The sixth qualification for pension relates to the grounds for 
retirement from the service. The chief of these is attainment of the 
age of 60, the age chosen by the framers of the Act of 1859 as the age 
for voluntary superannuation. For the officer under 60 there were 
originally two conditions (now three) on which retirement on a 
pension was possible. They were: (1) in case of physical or mental 
infirmity, and (2) in case his place had been abolished on reorganiza- 
tion. 

In case of ill health the officer is able to retire on a pension, pro- 
vided he has been ten years in the service and the infirmity is cer- 
tified as likely to be permanent. If he has been less than ten years 
in the service when he retires on account of ill health, he receives 
instead of a pension a gratuity of one month's pay for each year of 
service. If the invalidity pensioner recovers, the pension is not with- 
drawn except in the event of his declining reemployment in the 
public service if it is offered him. The power of recalling him to the 
public service is, however, in practice rarely exercised. He is free to 
follow whatever pursuits his condition may permit. The number of 
retirements for ill health short of 60 years of age is numerous. Of 
14,185 civil servants retired with pensions during the ten years end- 
ing the 30th of November, 1901, 7,093 were retired for age, 6,585 for 
ill health, and 507 for abolition of office. 

The Act of 1859 made retirement on a pension voluntary at the 
age of 60. It is now optional at the age of 60 and compulsory at 
the age of 65, but the Treasury is permitted to allow a retention in 
employment up to an age not exceeding 70, if satisfied that an offi- 
cer's retirement at 65 would be detrimental to the service. This 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 147 

regulation was established by clause 18 of order in council dated 
November 29, 1898. 

Power was given to the Treasury by the Superannuation Act of 
1859 not only to make a deduction from the full award of pension in 
case of misconduct or demerit, but also to award pensions in excess 
of the usual scale as a reward for special services, and to holders of 
professional offices, appointed at an age exceeding that at which 
public service ordinarily begins. In the case of officers required to 
possess professional or other special qualifications not ordinarily to be 
acquired in the public service the law provides that years not exceed- 
ing twenty may be added to the actual service for the purpose of 
calculating the pension. In practice an addition of ten years has 
been the maximum (except in very special cases), and since Decem- 
ber 20, 1888, when a Treasury minute to that effect was passed, the 
power to add years has not been exercised in respect of any newly 
created offices. 

COURTNEY COMLIISSION, 1902. 

The agitation begun by the civil servants soon after the passage of 
the law of 1859 for a change in the pension system continued down 
to the present year (1909). Since the present inquiry began, that 
agitation has resulted in the legislative enactment of September 20, 
1909, which undertakes to overcome the objection of the civil servants 
to the forfeiture of their theoretical contributions, in case of premature 
death, by providing insurance benefits in lieu of a part of the pension. 
This constitutes in effect, as will be shown, an important modification 
of the whole theory underlying the pension system. This parliamen- 
tary action was based on recommendations made by a royal commis- 
sion, of which the Right Hon. Leonard Henry Courtney was chairman, 
appointed in 1902, "to inquire whether it is possible so to amend the 
existing system of superannuation of persons in the civil service of the 
State as to confer greater and more uniform advantages upon those 
to whom it applies without increasing the burden which it imposes on 
the taxpayer." 

Appointment of Commission Due to "Deferred Pay" Com- 
mittee. 

This commission was appointed in response to a request for its 
nomination from a body of civil-service clerks organized under the 
name of the "Deferred Pay Committee." A memorial signed by 
50,000 of their number (the membership increased soon after this to 
60,000 or 70,000) was addressed by them to the Treasury asking that, 
as there was a considerable difference between their view of the 
existing pension system and the Government's view, the Government 



148 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

would appoint a commission to go thoroughly into the matter from 
every possible aspect, and obtain figures in connection with the 
problem to which the Deferred Pay Committee did not have access. 
This committee was formed originally of a number of civil servants 
selected from certain government offices. Later, subcommittees 
(22 in all) were formed in the leading towns of the United Kingdom. 
The smaller committees met from time to time in the different 
provincial centers, and large meetings were held at least once a year 
in London of representatives from all the subcommittees, with 
representatives from the leading public offices in London and from 
associations in the civil service, such as the Postal Clerks' Associa- 
tion, the Telegraph Clerks' Association, the Customs Federation, etc. 
The first evidence heard by the Courtney Commission was from 
representatives of the Treasury respecting the existing system. They 
next gave hearings to members of the Deferred Pay Committee. 
They summoned also other members of the civil service who could 
give them information as to voluntary organizations which had been 
formed in various branches of the service for the purpose of providing 
benefits for civil servants and their dependents supplemental to the 
pensions given by the State. In further elucidation of the problem 
before them they heard witnesses with regard to pension funds and 
superannuation schemes applicable to the city of Manchester, the 
London County Council, the Great Eastern Railway Company, the 
London and Northwestern Railway Company, and the civil services 
of India and New Zealand. Three eminent actuaries were also 
summoned before the commission to define and explain the principles 
that would be involved in any change of policy. 

Growth in Cost of Civil Pensions Since Ridley Commission. 

The first witness to be called by the commission was Mr. T. L. 
Heath, a principal clerk in the Treasury. He had the following 
figures worked out to show the amount of the original estimates for 
pensions during each of the fifteen years that had elapsed since the 
Ridley Commission reported in 1888. 



CIVIL-SEKVICE RETIEEMENT IIST GEEAT BEITAIN. 149 

SUPERANNUATION AND RETIRED ALLOWANCES— ORIGINAL ESTIMATES. 



Vote. 


1888-89. 


1889-90. 


1890-91. 


1891-92. 


1892-93. 


1893-94. 


1894^95. 


1895-96. 


Superannuation al- 
lowances 


$1,489,568 

756,896 
9,733 

16,507 

36,499 


$1,533,911 

735, 508 
9,733 

15,266 

40,392 
3,407 


$1,543,873 

717,337 
14,599 

12,852 

43,798 
3,407 


$1,637,422 

673,767 
13,626 

10,940 

45,988 
3,407 


$1,633,971 

640,203 
9,733 

8,594 

47,692 
3,406 


$1,793,602 

600,920 
9,733 

10,040 

33,301 
3,407 

2,711 


$1,871,797 

553,467 
9,733 

14,220 

31,613 
3,406 

2,711 


$1,977,215 

537, 140 
9,733 


Compensation allow- 
ances 


Gratuities.. 


Compassionate allow- 
ances 


14,010 

27,296 
3,407 


Prison officers com- 


Compassionate fund.. 


Middlesex registry, 
pensions, etc 




2,711 


Mercantile marine, 
pensions, etc 
































Total 


2,309,203 
867,697 

1,609,838 
964, 905 

1,138,975 
854,377 

5,378 


2,338,217 
864,290 

1,636,117 
957,854 

1,096,593 
865,634 

5,377 


2,335,866 
791,293 

1,609,352 
972, 531 

1,044,083 
886,287 

5,378 


2,385,150 
779, 127 

1,553,387 
966,078 

1,018,889 
931,964 

5,377 


2,343,599 
749, 928 

1,526,621 
949,094 

1,025,863 

1,013,269 

5,377 


2,453,714 
759,661 

1,519,321 
957,956 

1,019,001 

1,066,153 

5,377 


2,486,947 
801,513 

1,519,321 
931,380 

1,028,574 

1,117,606 

5,377 


2,571,512 


War office 


824,385 
1,544,140 


AdTnir.<),tty . , 


Customs 


916, 021 


Inland revenue 

Post-office, etc 

County court officers, 
Ireland 


1,053,602 
1,159,633 

5,377 




Total 


7,750,373 


7,764,082 


7,644,790 


7,639,972 


7,613,751 


17,781,392 


07,888,008 


"8, 071, 475 







Vote. 


1896-97. 


1897-98. 


1898-99. 


1899-1900. 


1900-1901. 


1901-2. 


1902-3. 


Superannuation al- 
lowances 


$2,071,469 

500,558 
12, 166 

17,821 

23,384 
3,407 

2,015 


$2,134,345 

459,835 
12,166 

15,013 

17,729 
3,407 

1,723 


$2,171,418 

422,909 
12, 166 

14,755 

13,490 
3,406 

1,723 


$2,244,771 

395,033 
12,166 

34,980 

9,402 
3,407 

1,324 

^9,186 


$2,263,312 

381,641 
12, 166 

19,150 

5,631 
3,406 

1,324 

56,266 


$2,387,057 

354,014 
12,166 

33,910 

3,849 
3,407 

1,324 

52, 183 


$2,523,266 

330,061 
12,166 

34,280 

2,350 
3,406 

1,324 

49,643 


Compensation allow- 
ances . 


Gratuities 


Compassionate allow- 
ances 


Prison officers com- 
mutations 


Compassionate fund. . 
Middlesex registry, 

pensions, etc 

Mercantile marine, 

pensions, etc 












Total 


2,630,820 
845, 798 

1,578,693 
896,288 

1,040,112 

1,224,699 

3,105 


2,644,218 
853,097 

1,593,292 
900,750 

1,054,892 

1,317,162 

3,105 


2,639,867 
862,830 

1,593,292 
908,517 

1,145,224 

1,483,548 


2,760,269 
893,976 

1,661,910 
935,249 

1,223,063 

1,717,821 


2,742,896 
875, 970 

1,671,643 
941,940 

1,271,018 

1,863,378 


2,847,910 
917,364 

1,657,530 
933, 570 

1,271,621 

1,963,876 


2, 956, 496 
939,234 

1,703,762 
934,280 

1,310,510 

2,059,065 

1,732 


War office . . 


Admiralty 


Customs 


Inland revenue 

Post-office, etc 

County court officers, 
Ireland 














Total 


"8,217,499 


8,364,793 


8,631,555 


9,256,983 


9,338,453 


09,538,335 


9, 905, 079 







o The sum of the items does not equal this total; the figures are, however, the equivalents of those in the 
original. 

It will be noted that the return for 1902-3 showed that the charge 
for civil pensions, gratuities, compensation allowances, and all those 
allowances which came within the scope of the Courtney Commis- 
sion's inquiry was £2,035,360 ($9,905,079), exclusive of pensions 
awarded under separate acts to the Royal Irish Constabulary and the 
Dublin Metropolitan Police which brought the total up to something 
like two and a half million pounds. It will be observed that the pen- 
sion charge as shown by the estimates had risen from £1,592,597 
($7,750,373) in 1888-9 to £2,035,360 ($9,905,079) in 1902-3. This 
increase in amount was explained by Mr. Heath to be due in some 
degree "to the expansion in the numbers of the civil service, but also 



150 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 

to the fact that in the departments which have increased in numbers 
the pension charge comes more into force." He showed how in the 
Post-Office, which was growing rapidly, there was nothing Hke the 
normal number upon the pension vote, while in other departments, 
where there was little growth in the number of employees, the 
relative number on the pension roll was much larger. 

Relation Between Cost of Pensions and Salary Charge Con- 
fused WITH Amount of Postponed Charge made by State to 
Pay Pensions. 

The members of the commission were desirous of comparing the 
amounts paid in the effective service (salaries) with the amounts paid 
in the noneffective (pensions). Mr. Heath pointed out that there 
was no fixed relation between them. He showed that the proportion 
of pensions paid for post-office employees to the salaries paid was 
something like 6 per cent only, whereas in the Customs the proportion 
of pension charge to salary charge was 30.6, the proportion being 
bound to decrease where the department was growing fast and in- 
crease as it stood still or reached an equilibrium. The average pension 
charge at the time throughout all the service seemed to be about 16 
or 17 per cent of salaries. He tried to make clear the point which 
seems to have given rise to so much misunderstanding, as was seen 
in the investigation of the Ridley Commission, that there is no fixed 
and necessary relationship between present pensions and present 
salaries, since present pensions are awarded on the basis of past sal- 
aries, and are payments to persons who are the residue of a service 
of prior years, which may have been much smaller or much larger 
than at present. Said Sir Alexander Henderson: 

"Take 1889, the year that is given here; the £1,600,000 [$7,781,534], 
the number of the employees, and the salaries paid; then the figure 
£2,035,000 [$9,893,595] would work out exactly, would it not, as the 
salaries to one date; they would bear the same proportion as the in- 
crease in the pension ?" 

"Not necessarily." 

"Why not?" 

"If the growth were continuous, it would be so, would it not?" 
interposed the chairman. "It depends upon whether the growth 
is continuous, the £2,035,000 [$9,893,595] now charged may be said 
to have reference to an average charge of an effective vote of fifteen 
years ago. The £1,600,000 [$7,781,534], of 1889 might have had 
reference to an effective charge of fifteen or twenty years before that ; 
but if the growth during these periods had been continuous, and could 
be looked forward to being continuous in the future, so the pension 
charge would increase in proportion, would increase with the vote; 
it all depends upon the continuity of it?" 

"It all depends upon the continuity of it." 

"But also upon those changes which are constantly happening in 
the departments?" queried Sir Ralph Knox. 



CIVIL-SEKVICE RETIEEMENT IF GREAT BRITAIN. 15 1 

''Also upon the increase of departments. That would vitiate the 
calculation of a normal charge. Supposing the numbers remained 
constant over a series of years, you could get a normal charge." 

''And the rates of pay continued constant?" 

"And if the rates of pay continued constant, you could get the 
normal charge. Then I think your comparison would be possible if 
there were no growth of salaries or numbers." (^) 

This point seemed finally to have been made plain. 

Through the questioning of Sir Ralph Knox the mistake made 
by Sir Herbert Maxwell and others at the time of the Ridley Commis- 
sion's inquiry in supposing that the percentage of salary that would 
have to be deducted to create a superannuation fund that would pay 
the necessary benefits was the same as the average between the non- 
effective and effective votes, 12 to 20 per cent at the time of the 
calculation of 1869, was also made apparent. The fallacy of this 
view is well brought out in the testimony, and it was evidently 
fresh in the minds of the commissioners when the members of the 
Deferred Pay Committee came before them three days later to present 
their case. 

Said Sir Ralph Knox to Mr. Heath, 

"It has been stated now by you that in a certain class of depart- 
ments the pension charge amounts to as much as 29 per cent, in 
another to 32 per cent, in another 4 per cent, in another 5 per cent, 
and in another 14 per cent, I think?" 

"Yes."^ 

"And it has been stated elsewhere that such a percentage repre- 
sented the addition that would have to be made to the salaries of the 
various departments in order to provide a fund for pensions. It has 
been stated, I think, before the last commission, that a calculated 
figure of 18 per cent gave the amount which would have to be added 
to the pay of everybody in order to give them the equivalent of 
the pensions ?" 

"I do not think that there is any necessary connection between 
the two things." * * * 

"In fact, as the amount of the pension charge at the present day 
represents the pensions on establishments of 20 or 30 years ago, 
they cannot have necessarily any connection?" 

"No." 

"And your view would be that, supposing you wanted to ascertaia 
what should be added or deducted from the pay of the various officers 
of the departments in order to provide the pensions, you would have to 
discount, as I should say, that charge. That is to say, you would 
calculate the present value of the deferred pension in order to pro- 
vide the subsequent pension charge?" 

"Yes * * * j^ would mean an actuarial calculation." 

"An actuarial calculation of the sum of money or the annuity to 
be paid or added to the pay of everybody in order to provide the 
deferred annuity at the termination of the man's service?" 

o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 8. 



152 CIVIL-SEEVICE EETIREMENT IN GREAT BEITAIN. 

"Yes." 

"And the idea which has got into many people's heads that there 
is a direct connection between the present charge for pension and the 
present charge for pay is, at all events to those who have given any 
consideration to the thing, an exploded idea?" 

"Yes."(«) 

The confusion caused in the minds of many by the testimony 
which Sir Reginald Welby had given before the Ridley Commission 
about the actuarial calculation made in 1869 as regards a normal 
estabhshment was cited. Said Sir Ralph: 

"What Lord Welby roughly calculated was that certain salaries 
would produce, supposing the thing were constant, a certain constant 
charge for pensions?" 

"Yes." 

"But the converse, or the reverse, is what I am driving at. What 
we want to laiow is what addition to a man's pay or deduction from 
a man's pay would produce the normal charge for pensioning him. 
That would be it, would it not?" 

"Yes, I am not aware of any actuarial calculation having been 
made to determine that point." 

"At all events, the notion that was given utterance to in the recent 
commission is no longer accepted by the Treasury?" 

"Exactly." («) 

The views of the Deferred Pay Committee were presented to the 
commission by two representatives of the London committee, Mr. 
Charles R. Moir, a chief examiner, and Mr. Herbert Rolfe, a clerk in 
the War Office, and by two representatives of provincial committees, 
Mr. H. Ellis, Collector of Customs at Manchester, and Mr. H. F. Dol- 
lond West, Collector of Inland Revenue at Hull. 

They stated that the main point they wished to emphasize was 
that "pensions in the civil service are really deferred pay." Their 
understanding was that from 16 to 20 per cent of their salaries was 
being withheld to pay pensions. They said they wanted the com- 
mission to find out what the real basis of deductions was and then 
make some rearrangement of the system that would be more equita- 
ble to different classes of the service. Considering that pensions were 
paid out of theoretical deductions from the salaries of all the civil 
servants, they held it inequitable that only those civil servants who 
reached the pensionable age received any benefit from those deduc- 
tions. They thought that the amounts deducted from salary should 
be put into a fund and these amounts, with whatever interest they had 
earned, returned to the contributor or his representatives on his 
separation from the service. They held especially that widows and 
orphans of those who died in harness should have a claim on the de- 
ferred pay of their deceased relatives. If the imaginary deductions 

a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 9. 



CIVIL-SEEV:CE RETIREMENT IN GREAT BRITAIN. 153 

were more than sufficient to pay the pensions — and they thought 16 
to 20 per cent of salaries would be — then they believed the difference 
should go into an insurance fund for the benefit of their dependents. 
If those deductions were not sufficient for the grant of both pension 
and insurance then they held that the system should be so revised, 
even if it did cost a little more, as to make that possible. 

Asked by the chairman of the commission what he meant by saying 
that pensions are deferred pay, Mr. Moir said: 

We understand that pensions are not mere addenda, charitable 
contributions, or anything of that kind, added by the Government, 
but that in fixing salaries and scales of pay the Government has in 
all cases made some pretty definite deduction from what we might call 
the market rate, and, having made that deduction, it is really equiva- 
lent to the Government having given the larger or full market rate 
of salary, and having asked the civil servant himself to contribute 
the amount of the deduction. That amount then represents pay 
deferred. 

In every case when the Government takes on temporary servants 
and puts them on the establishment they make a reduction in the 
rates of pay, because a person going on the establishment will ulti- 
mately be entitled to a pension. For instance, in the War Office, it 
occurred that certain draughtsmen were brought on from what was 
then known as the temporary establishment to the permanent estab- 
lishment. It occurs also in all the dockyards, when the workmen, 
who are temporary and non-pensionable, are brought on the estab- 
lishment. In every case the deduction is made. In the Post-Office, 
also, whenever they bring on from the temporary to the established 
service, they make a deduction. These are general illustrations of 
what takes place regularly in the civil service. As you are aware, 
sir, there are two classes, what are called temporary or unestabHshed 
civil servants and established civil servants. The temporary civil 
servant presumably gets the full market rate of wages or pay for the 
work he does. The established civil servant does not get it, and so 
when there is a transposition from the one class to the other, a de- 
duction is made — a definite, absolute deduction — because of the pros- 
pective pension that comes to the man if he lives to a certain age. C^) 

Arguing that if deductions were generally made, then the system 
operated unfavorably in the case of those civil servants who did not 
live to gain a pension, Mr. Rolfe said: 

I am afraid when the present pension act was passed the whole 
subject of a pension system was not fully considered. That is our 
own impression, and it was considered sufficient at that time to pro- 
vide a pension for the persons * * * who remained in the serv- 
ice of the Crown for the ordinary period of 40 years, but the desira- 
bility of providing for those who dropped out of service before the 
natural termination of their service was not considered. (^) 

a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 12. 
b Idem, p. 13. 



154 CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. 

In further explanation of their contention that the existing system 
was really "& system of chance" and full of inequities, Mr. Moir said: 

It works badly, in this way, that the man who does not live to gain 
a pension gains nothing from the proportion which has been deducted, 
assuming a deduction from his actual pay. One man, for instance — 
and we could give you many cases — may live to serve the Crown for 
40 years, and be just about to draw a pension, and may die and get 
nothing. Another man may have served the Crown for the same or 
for a longer or shorter period; he may not have served the Crown so 
well, and yet he may live for 20 years to draw a pension. We think 
that any system which allows such an inequality in its operation is 
not satisfactory. {"') 

To this Mr. Rolfe added: 

Of course, we can bring any number of specific instances, if they 
are desired, to illustrate this. For instance, we could give an instance 
of a man who previously served the Government in an unestablished 
capacity at a salary of £365 ($1,776.27) a year, and who was put 
upon the establishment at a salary of £300 ($1,459.95), and who lived 
for five years and then deceased, and who consequently lost about 
£60 ($291.99) a year for a period of five years. (^) 

On the chairman's contending that, if the representatives of men 
dying in active service should receive the deferred pay which had been 
deducted from the civil servant's salaries an additional charge would 
be made on the State, Mr. Ellis said: 

Well, then, even granting that, sir, as I said just now, that does not 
get rid — putting the case from our point of view — that does not get 
get rid of the inherent injustice of the present s}^stem. The way you 
put it is this — that if a man dies on active service, and his money is 
not returned to his widow, the money goes to swell or to niaintain 
the pensions of his more fortunate colleagues who live beyond the 
pensionable age. * * * That does seem to us to be a gross 
mjusticcC*) 

At another hearing when Sir Ralph Knox, a member of the Com- 
mission, reminded Mr. Moir that ''only the same charge is to be 
incurred," whatever the revision, Mr. Moir replied: 

I may say, sir, we came to this commission with a view of trying to 

Eersuade them that the civil servants were entitled to something more 
ecause of the method upon which the Treasury have framed the scale 
of salaries on the basis of deduction of something like 16 to 20 per cent. 
Of course, if that is ruled entirely out of the terms of reference, we 
find the position is a little more difficult. We can not, of course, press 
that aspect of the question too much; still, we would like to ask the 
commissioners to consider it, with a view of making some report in 
this way, that although it may be very satisfactory for the Govern- 
ment to revise the pension system without costing anything, it would 
be very much more favorable from the civil servants' point of view 
that it should be revised, even though it did cost a little, sir. 

•^ Report of Commission on Superannuation in the Civil Service, 1903. Minutes of 
evidence, p. 14. 
&Idem, p. 43. 



CIVIL-SEEVICE RETIEEMENT IN GEE AT BRITAIN. 155 

Mr. RoLFE. And not only desirable, but equitable, sir. 
Mr. Mom. Quite fair. 

Mr. RoLFE. We base our claim for a reconsideration of the pension 
system to a large extent, upon the inequality of the present system. C^) 

Request of Civil Servants that Theoretical Contributions 

BE Funded. 

The specific request of the deferred pay committee, as voiced by 
Mr. Rolfe, was that the pension system for the government employees 
should be "put upon a definite footing similar to schemes * * * 
which exist outside." They held that the existing pension system 
was "archaic," "old-fashioned," and less desirable than super- 
annuation schemes developed since the adoption of the government 
system in 1859, by organizations like the Bank of England, the Lon- 
don and Northwestern Railway, the Cunard Steamship Company, 
and the Liverpool and the Manchester corporations. The charac- 
teristic features of all these superannuation schemes, as distinguished 
from the Government's pension system, was that they had a super- 
annuation fund made up of contributions from the salaries of the 
employees and contributions from the employing body. The following 
quotations from the testimony of Messrs. Moir and Rolfe showed the 
reasons advanced by the civil servants for desiring that their theo- 
retical deductions be funded in similar manner: 

The whole system hitherto has been so vague, we think it would be 
very desirable to get it on a definite footing. A fund such as we 
contemplate would have that advantage, because, practically, a per- 
sonal account would be kept of every man's own position in relation 
to the fund. * * * j^ these funds that we know anything of 
have got definite statements and definite accounts with their em- 
ployees; an employee knows at any moment what his own title is 
exactly — how he personally stands. * * * Then, again, sir, 
the creation of an actual fund would have the advantage which these 
funds we have referred to have, that from time to time the possi- 
bilities of the fund might be reviewed. * * * j^ appears in their 
cases that they are able, as they value and examine their funds, to 
increase the benefits they can give. * * * q^j. chief view of the 
advantage of a fund is based on the existing funds of the railways, 
and so on. They seem to us to be very satisfactory to the recipients 
as a rule, and it was mainly on that ground we thought it would be 
desirable that the Government should also establish an actual fund.('') 

The desire of the civil servants that the Government should put 
their imaginary deductions into a fund which should be invested for 
their benefit undoubtedly had its origin in the feeling that it was 
unjust for this "deferred pay" to be withheld from their dependents 
in case of their not living to receive themselves the pension their con- 
tributions would have earned. They thought that widows and 

« Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 17. 
&Idem, p. 16. 



156 CIVIL-SEEVICE KETIREMENT IN GREAT BRITAIN. 

orphans would have a claim that could not be denied on a fund to 
which the deceased civil servant had been a recognized contributor, 
the amount of his contributions and the accrued interest being defi- 
nitely known and a matter of record. Mr. Moir stated that the most 
important thing that they wanted to guard against, in addition to 
destitution in old age, was "death during service" or "the leaving of 
widows and orphans." It was pointed out that one of the causes 
which led originally to the pension system was the fact that "the 
public would hear with very great regret of civil servants being desti- 
tute in their old age" and that "the Government should extend that 
feeling to the widows and orphans of all servants who die by the way." 

Request of Civil Servants for Insurance out of Surplus 
Theoretical Contributions. 

It was assumed by the representatives of the Deferred Pay Com- 
mittee that the amount which they believed to be deducted from their 
salaries was more than sufficient for thepayment of pensions. There is, 
of course, no mathematical difficulty in calculating a proper deduction 
from a monthly salary or other salary that will create a fund only 
sufficient to pay a deferred annuity to the survivors. From an insur- 
ance point of view, the forfeiture of premiums by those who die pre- 
maturely is not inequitable, since the premium paid contemplates 
that forfeiture. Nevertheless, the assumption of the employees 
shows most conclusively the impracticability of any arrangement, in 
a general superannuation scheme, which carries with it a forfeiture by 
an employee. Their assumption was perfectly reasonable, too, in view 
of their belief that that deduction amounted to from 16 to 20 per cent 
of salaries. They knew that many of the superannuation funds main- 
tained by railway systems were financed on a deduction of 2| per cent 
from salaries and 2^ per cent from the employing body, making a total 
of only 5 per cent against the reputed deduction of 16 to 20 per cent 
by the .Government. It was not strange that they should think, 
allowing even for the more limited pensions of the industrial schemes, 
that the difference between the amount presumably deducted by the 
Government and the amount presumably necessary should be suffi- 
cient to give them the additional insurance benefit. 

"You want a sum at death and a sum on retiring from the service. 
Well, now, can you expect that in addition to what we have already 
given?" asked Mr. Bunn, a member of the commission. 

"Yes, we do," was the answer, "the ground of our claim being that 
the Government have calculated the 'pension to he worth more than it 
really is, and have fixed the salaries accordingly, and in readjusting 
that, we want them to readjust it so as to provide funds for widows 
and orphans. " C*^) 

a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 25. 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 157 

After the review of first principles which the commissioners had had, 
a few days before, with Mr. Heath, of the Treasury, they were, of 
course, not incHned to accept without question the assumption of the 
Deferred Pay Committee that from 16 to 20 per cent of the civil serv- 
ants' salaries was withheld in order to maintain the pension system. 
They remembered that Mr. Heath had said he knew of no actuarial 
calculation having been made to determine " what addition to a man's 
pay or deduction from a man's pay would produce the normal charge 
for pensioning him." 

"Do you think you can prove, as a matter of history, that there has 
been a deduction of that kind contemplated?" said the chairman of 
the commission to the representative of the Deferred Pay Committee. 

"Yes," answered Mr. Moir. "We rely largely upon the evidence 
given before the Royal Commission on Civil Establishments in 1886 
* * * by representatives from the Treasury, Sir Francis Mowatt 
and Lord Welby. * * * Sir Francis Mowatt said, for instance, 
that when they gave a man £100 [$486.65] a year they practically 
considered a charge of £118 [$574.25] a year was being undertaken. 
That, as far as the taxpayer is concerned, so to speak, it was really 
a charge of £118 [$574.25] a year." 

"Can you tell us what that is founded on?" asked the chairman. 

"That is our difficulty sir," returned Mr. Moir. "Throughout the 
Ridley Commission we find statements of that kind, varying in places 
from time to time, and with different speakers, but, as far as we can 
gather, the Treasury mind is that there is some deduction or that the 
proportionate value of the pension is 16 to 20 per cent. The state- 
ments varied in different places, but as far as we can get them together 
they form somewhat of a general statement to that efi^ect. Undoubt- 
edly the Treasury mind was apparently a little vague as to the exact 
proportion." 

"You can not suggest upon what basis those figures are given?" 

''We are not in an absolute position to say that," said Mr. Rolfe, 
' ' but we are in a position to say that Lord Welby stated that he had 
had a calculation made, and that his statement as to the proportion of 
deferred pay to actual salary was based upon that calculation. Of 
course we are not aware of the details of that. 

"There is also a Treasury letter," added Mr. Moir, "written on 
the 1st of July, 1891, to the Board of Trade, where this passage 
occurred. * * * 'The conversion of temporary into permanent 
appointments, without any alteration of salary, involves an addition 
of 15 to 20 per cent to the charge.' " * * * 

"You have no knowledge on what that is founded? 

"No, no actual knowledge." 

"Have you any opinion yourself upon that? 

"Well, my impression, sir, for what it is worth, is that it is founded 
on the relation between noneffective and effective charges for the 
year. 

"You think that it is a just method? 

"No, I do not, but if the Treasury have allowed it to operate, I 
think we are entitled to rely upon the fact that that is what has been 
actually taking place. 



158 CIVIL-SEKVICE RETIKEMENT IN GEEAT BRITAIN. 

"What do you mean by the Treasury having allowed it to operate? 

''Well, if in fixing any scale of salaries they have considered that 
the noneffective charge or part of the charge was 15 or 20 per cent, 
they have no doubt reduced the market rate of pay given to any 
particular class by that amount." C*^) 

The point of this is that Mr. Moir at least, and presumably other 
civil servants, too, had perceived the confusion of ideas which had 
arisen as a result of testimony before the Ridley Commission in 
regard to pension charges and the amount of deductions required for 
maintaining a fund, but thought that, whatever the basis on which 
the Treasury made deductions, the fact that they made them, regard- 
less of the percentage of deduction or the scientific or unscientific 
basis for such deductions, was sufficient to justify the theory of 
pensions as deferred pay and the demand of the clerks for a more 
equitable distribution of the contributions. Said he: 

What I meant was that even though the Treasury may have acted 
on a wrong basis, it does not follow that the civil servant should 
suffer because of that. It is not for us to justify the ground on which 
the Treasury or whoever fixed the rates of pay may have arrived 
at the proportion. What I mean, if I can make myself quite clear, 
is this: that it is quite possible that the relation between the non- 
effective and the effective charges does not bear the same proportion 
as the value of the deferment, as we call it, does to the pay of any 
individual civil servant. For instance, we are advised by our actuary 
that in a few years, say ten or more years, the relation or proportion 
between the noneffective and the effective charges will probably rise 
to something like 25 per cent, whilst at the time the Treasury were 
dealing with these matters the relation was something like 16 to 20 
per cent, so that the proportion may be a varying amount, but the 
value of a civil servant's pension bears a constant relation to his 
pay.e) 

Discussing the matter in detail, the representative of the Deferred 
Pay Committee and the chairman of the commission agreed that in 
calculating the pension charge it was important that the element of 
interest should not be forgotten and that the actual deduction would 
probably be much less than the ratio of the noneffective to the effective 
vote. How much less would depend on the rate of interest. 

The Fact of Postponed Charge Established but Amount not 

Determined. 

Sir Francis Mowatt, the permanent administrative Secretary to 
the Treasury — formerly Mr, Mowatt — was later called before the 
commission and questioned as to what he had meant in 1888 when he 
told the Ridley Commission that the real charge that the State had 
to undertake for a civil servant on £100 (.1486.65) a year salary was 

o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 12. 
b Idem, p. 13, 



CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 159 

£118 ($574.25) a year. "That has no reference to deduction," 
said he. ''I meant no more than this: That the pension charge of 
an -officer might be taken roughly at 16 to 18 per cent in addition 
to his salary." While it seems clear that he was thinking not of 
individual charges but of the charge of the whole service, grouping all 
cases together, since all individuals do not live to pensionable age, 
it is equally plain that his statement was a little misleading. It is 
not strange that the civil servants generally should have thought 
they had high authority for the contention that about 18 per cent of 
their salaries was being held back by the Treasury. 

The origin and fallacy of the theory of a 16 to 20 per cent deduc- 
tion was thus abundantly shown and admitted, but the theory of 
pensions being deferred pay remained substantially unshaken, 
although Sir Francis Mowatt declared that he had never heard of a 
public servant being reduced in salary on being transferred from a 
nonestablished to an established post. Members of the Deferred 
Pay Committee had told, the commission that such was the common 
practice. When given the facts in a definite case, which had been 
cited to the commissioner. Sir Francis Mowatt said: 

I could not answer without looking fully into the case, but I should 
say that under no circumstances would a man without some express 
explanation suffer a reduction of 15 per cent on being transferred 
from a nonestablished to an established post.(") 

Mr. Heath, also an official of the Treasury, admitted, however, 
that deductions of about 5 per cent of salary were made on trans- 
ferring workmen from the unestablished to the established service, 
Mr. Morton, a member of the commission, said to him: 

''You were talking just now of two different classes of laborers in 
dock yards. You gave us an instance some time ago. It is well 
known that there are hired laborers and established laborers, and 
we are aware that the hired laborers receive a higher rate of pay 
than the established laborers." 

"Yes," answered Mr. Heath, "the difference being that the estab- 
lished laborer receives about 5 per cent less." 

"Yes, in point of fact, that is a species of contribution that he 
makes toward his future pension?" 

"No, I should not put it that way." 

"I should be glad to hear what your view is." 

"It might be regarded as a contribution toward the cost of giving 
him pension rights, but of course it is not put aside ; it is not accu- 
mulated. It has no relation to a system under which a fund is 
established?" 

"Oh no, I am quite aware of that. It is a small contribution 
toward the cost of making a man pensionable." 

"He receives less pay in consideration of pension, in point of fact?" 

"It is by way of a set-off against the pension charge." Q*) 

a Report of Commission on Superannuation in the Civil Service. 1903. Minutes 
of evidence, p. 153. 
b Idem, p. 9. 



160 OIVII.-SMIiVK'I'l lil'/l'llfl'lMKN'r IN (iRKAT (IKITAIN. 

Request of (!ivil Servants that Amount of Postponkd (Charge 

HK Determined. 

Tho mombcrH of Uw. cornrniH.sion and rcpro.sontativos of tho civil 
service Jiaviii}^ aj^nuul ihnt tlicrci was-a deduction from salary but 
that it was less than 16 to 20 [)cr c(>,nt, Mr. Rolfe defined the position 
of the civil H(u-vants thus: 

We should like it to be established in tho first instance, if possible, 
wlntt is th(t lU'tiiiiJ deduction, if .such dcductioriH exist, which the civil 
scrvjints iit pcescnt suifcr, juul wc feci tluit thci 'l'rea.suj'y oiUy is in a 
j)o,Mition to hii,V(i the necessary calculations made- to est!d)lish that 
I'nct, if that fii,ct can be estjiblished. It would tlu^n be se(>,n whether 
the d(^d uctions jit pres(^n.t nuide are sndicient in themselves to form a 
supcwiuuuiiition fund which would ^^'wci benefits to survivors, and 
jilso to thos(^ who decciisc^ premiiturely, but until (hut is definitely 
asceitiiined tlu^ position of the civil sc^rvsuit is that the deduction at 

1>r(^sent sulfered is sullici(^nt to provide the benefits for which we ask 
>y tho formation of a 8Ui)erannuation fund. (") 

The chiiirman aro;u(Ml that the result of mn,l<inpj payments to those 
who do not now i-ec-eive payments, na,m(dy, widows and oi'phans, 
must mean smaller payments to pensioners unless tho total pay to 
the civil servant, was increased. '^Phe civil servants a,rp;u(Hl, on the 
otluu" hand, thid, soinc^thin^^ additional would be available, if the 
funds were set aside, beaiinfij interest. Pressed for an answer whether 
the civil service was pfi^pared (,o take less payment to the ])ensioner, 
Mr. Moir said that Ik^ thought a, rc^Iuction of pensions, if combined 
with insurance benefits, would probably be acceptable to them. 
Mr. Ellis also held that a small diminution of pension, would be 
a.cc,ept(Hl by tlie service to insure provision for (h^pendent I'elatives. 

The sessions between tho commissioners and tho representatives 
of the civil service resulted, therefore, in a helpful clarification, of 
ideas. It seemed to be coJiceded, on the onv, Inind, that th(>j-(^ was 
reason for thinkhifj; that pensions were, to some extent at least, 
deferments of ])ay and it was admitted, on the other hand, that there 
was no sound basis for the contention that the amoujits deferred 
were as much as 16 to 20 per cent of salary. The civil servants' 
repr(^senta,tives admitted reluctantly, also, that if it was impossible 
to increase the total (diar<j;e, the only way to secure the insui-auce 
beneiits desired might be by roductioi\ of pensions. Th(>y ho])ed, 
however, that the creation and investment of a fund mi<;;ht obviate 
that necessity. 

The actuary whom tho l)el'err(^d Pay Committee had consulted, 
Mr. Philip Lewhi Newman, was later called before tlu^ commissicm 
and his testimony served to emphasize this clarilicaXion of ideas. 
He stated that they had wished to have certain benefits upon death 

" lleport of CommiBBion on Suporannuatiou in the Civil Service. 1903. Minutea 
of ovidciico, p. 14. 



CIVIL-SICKVICE KETIKEMENT IN GKEAT BKITAIN. 161 

before superannuation or upon death after superannuation, but 
before the amounts assumed to \)o, paid in eontribtition, would equal 
the pension paid in addition to the present pension, and, that he had 
estimated for th(!m wiiat the additional eost would be for providing 
beneiits on. death })efor(i superannuation. He did not take into 
consid(;ration that the charge was to remain th(5 same and said that, 
if that had been a condition of his investigation, the only way in 
whicli he could hav(5 given them any plan by which they could secure 
payment on death before superannuation would liave })een by reduc- 
ing the pensions or by requiring them to make a contribution. Such 
beneiits could be secured only at the cost of the superannuation 
allowance or the cost of some contribution from the civil servant, 
such as a revision of the scale of salary; in other words, hy either 
reduced pension or reduced pay. On being asked if he had advised 
the ])eferred ]^ay Committee that they could get greater benefits by 
the institution of a pension fund instead of the maintenance of the 
existing system which charged the actual cost of the pensions each 
year to the annual estimates, he explain(;d that he had done so, but 
only on the assumption urged by them that they were already suffer- 
ing a deduction from their salaries of a larger amount than was neces- 
sary to give them the pension provided. Having no data to go on, 
he said he had not been in a position to decide on the truth of their 
assumption. 

Voluntary Insukance OuoANJZArioNs Maintainjou by (Jivil 

Servants. 

Evidence given the commission by members of the civil service 
regarding the vohmtary insurance organizations maintained by them 
to provide against that calamity most dreaded by them— ''death 
during service" — showed that there was a commendably high aver- 
age of foresight and prudence in the sei-vice. They lV)unrl that the 
largest of these organizations was the Civil wService Insurance Society. 
This society, which was then about twelve years old, was enabled by 
a special arrangement with an insurance company to effect insurance 
for civil servants on very favorable terms, the })remiun)s being de- 
ducted quarterly from the salaries of the policy holders. They found 
that over 20,000 policies had been taken out iVn- an aggregate sum 
assured of over £5,000,000 ($24,.':;32,500). The Civil Service In- 
surance Society also deals in annuities both immediate and deferred, 
and it had recently estal^lished in connection with its general business 
a widows' and orphans' annuity fund. The commission heard evi- 
dence also in regard to two old-established and prosperous depart- 
mental organizations known as the Customs Annuity and Benevo- 
lent Fund and the Inland Revenue Benevolent Fund. They found 
that the former was mainly a life assurance society and that the latter 
.35885— S. Doc. 290, 61-2 11* 



162 CIVIL-SEKVICE EBTIKEMENT IN GREAT BRITAIN. 

undertook the provision of widows' annuities in return for the sur- 
render of bonuses on policies of insurance. They found two similar 
organizations in the Postmen's Mutual Benefit Society and the Post- 
Ofiice Insurance Society. The former had a membership of about 
12,000 and provided a benefit averaging £25 ($121.66) which was 
payable on death or on retirement by reason of ill health, and, in 
some cases, on dismissal or on voluntary resignation of employment. 
To the Post-Office Insurance Society all grades of the established 
postal service are eligible for membership. The members numbered 
then about 20,000 and the amount of the benefit varied from £50 to 
£100 ($243.33 to $486.65). A similar institution had been in ex- 
istence for fourteen years among the Board of Trade surveyors under 
the name of the Board of Trade Surveyors' Mutual Trust. During 
that time the total sum paid out was nearly £5,000 ($24,332.50), or 
an average benefit of about £165 ($802.97) . Another institution that 
the commission found very meritorious was the Civil Service Benevofr 
lent Fund, which had been established in 1885, was supported by the 
voluntary subscriptions and donations of civil servants, and applied 
itself to relieving the necessities of the widows and orphans of those 
who died either in the service or shortly after retiring on pension. 
The annual income from subscription was about £1,600 ($7,786.40), 
the number of cases dealt with since 1885 numbering nearly 1,200.. 
Though the amount of relief given in individual cases was not large, 
the fund accomplished a very useful work. 

Per Cent of Salaries Paid for Life Insurance by Civil 

Servants. 

An interesting statement was made by the commission in their 
report showing the per cent of salaries devoted to insurance by the 
clerks of various grades : 

In some respects, the considerations which affect the civil servants 
whose salaries exceed £160 ($779), and who may be distinguished 
as the income tax-paying body of the service, are not precisely the 
same as those which affect the wage-earning body. We have 
obtained, by the courtesy of the heads of departments, a return 
showing that the total number of officers receiving a salary above 
£160 ($779) is 14,754, of whom (a) 11,827 or 80 per cent have sala- 
ries not exceeding £400 ($1,947); (b) 1,075, or 7^ per cent have 
salaries exceeding £400 ($1,947) and not exceeding £500 ($2,433); 
(c) 1,104 or 7i per cent have salaries exceeding £500 ($2,433) and 
not exceeding £700 ($3,407), and (d) 748 or 5 per cent have salaries 
exceeding £700 ($3,407). Of the (a) class 26 per cent, of the (b) 22 
per cent, of the (c) 27 per cent, and of the (d) 34 per cent do not 
claim any deduction of income-tax in respect of insurance premiums. 
The remainder in the (a) class pay in premiums on the average 4.6 
per cent of their salaries, the (b) 5.5 per cent, the (c) 5.9 per cent; 
and the (d) 6.9 per cent. In other words, each member of the (a) 
class, on an average salary of £247 ($1,202), pays away £11 6s. 



CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 



163 



($54.99) a year in life assurance premiums; the (b) class, on an 
average salary of £436 ($2,122), pays away £25 4s. ($122.64); the 
(c) class, out of £597 ($2,905) pays away £35 2s. ($170.81); and 
the (d) class, on an average salary of £950 ($4,623), pays away 
£65 10s. ($318.76). From'this it results that the larger a man's 
salary is, the more, not only in actual money, but also in proportion 
to his salary, he devotes to life insurance. The general average for 
the whole 14,754 officers is that 3,842, or 26 per cent, do not claim 
any return of income-tax in respect of insurance, and that the remain- 
der, on an average salary of £321 ($1,562), pay away £16 12s. ($80.78) 
each, or 5.2 per cent, in premiums. No similar statistics are obtain- 
able with regard to civil servants having an income not exceeding 
£160 ($779). >) 

The return on which the foregoing statement was based is as 
follows: C") 

SUMMARY OF A RETURN FOR THE FINANCIAL YEAR ENDING MARCH 31, 1902, FROM 
THE SEVERAL DEPARTMENTS AS TO THE INSURANCE OF OFFICERS ON THE 
ESTABLISHMENT RECEIVING SALARIES EXCEEDING £160 (.$778.64) AND CLAIMING 
REDUCTIONS OF INCOME TAX FROM THEIR DEPARTMENTS IN RESPECT OF THEIR 
INSURANCE PREMIUMS. 



Classified salaries. 


Officers 
receiving 
salaries. 


Amount of 
salaries 
received. 


Officers 
not claim- 
ing re- 
duction. 


Officers 
claiming 
reduc- 
tion. 


Amount of 
salaries re- 
ceived by 
officers' 
claiming 
reduction. 


Amount 
of insur- 
ance 
premiums 
paid. 


$3,406.55 and over 


748 
410 
694 


$3,530,724 
1,313,089 
1,888,460 
2,371,299 

14,040,870 


256 
112 
188 
232 
3,054 


486 
296 
504 
835 
8,682 


$2,248,080 

943, 940 

1,382,130 

1,869,364 

10, 440, 414 


$155,071 
55,230 


82,919.90 and under 83,406.55 


$2,433.25 and under $2,919.90 


81 285 


$1,946.60 and under $2,433.25 

$778.64 and under $1,946.60 


1,075 
11,827 


102, 518 
479, 053 






Total 


a. 14, 754 


23, 144, 442 


3,842 


10,803 


16,883,928 


873, 157 







a Including 109 officers witii regard to whom no official information was available as to whether they 
claimed reduction or not. 

Testimony of Commission's Actuary, Showing Necessity of 
Provision for Refund of Contributions. 

The last witness called by the commission was Mr. Henry W. 
Manly, actuary and secretary of the Equitable Life Assurance 
Society of London and ex-president of the Institute of Actuaries. 
As Mr. Manly had only a short time before published a paper on the 
''Valuation of staff pension funds" which had drawn particular at- 
tention to his skill in handling problems connected with such funds 
the commission called on him for assistance. The problem they set 
before him was a very definite one — to tell them ''what advantages 
could be conferred in exchange for the reduction of a quarter of a 
pension." They stated that there was objection to the existing 
system on the ground that it provided benefits for those who sur- 
vived, while those who died in the service, or their representatives, 
received no benefits under it — a fact he had commented upon in his 
paper — and they had reason to believe from what witnesses had said 



« Report of Commission on Superannuation in the Civil Service, 
pp. viii and ix. 

6 Idem., Appendix, p. 218. 



1903. Report, 



164 CIVIL-SEEVICE EETIREMENT IN GREAT BRITAIN. 

that the pension might be reduced by a quarter without diminishing 
the hold that the system had over the servants, or the power of 
dismissing them, or even the attractiveness of the service. They asked 
for no general criticism of the existing system, but wanted to know 
how it could be modified, in the suggested way, so as to be actuarially 
sound and at the same time be no additional tax on the country. 

In the course of his testimony Mr. Manly was asked if he had any 
knowledge of similar organizations of pension funds that could 
throw light upon the commission's labors. He replied that he had 
knowledge of a great many pension funds, but they were all more or 
less different from the government scale. He went on to make 
some remarks about the characteristic features of prevailing funds 
that show well why it was not strange that so many civil servants of 
England were dissatisfied with the existing pension system. Said he : 

Where there are funds and the men contribute a portion to those 
funds they always endeavor to get certain rules in by which they 
will get their money back somehow. * * * Or some portion of 
it, and although that diminishes — sometimes very largely dimin- 
ishes — the retiring allowance, they do not seem to mind that so much 
as the getting their money back. For instance, it is a very common 
rule now that if a man withdraws, resigns, or is dismissed from the 
service, he shall have his own contributions back. That diminishes 
the power of the fund to give pensions at the end. * * * (The 
added sum from the employer) he does not get back if he withdraws, 
resigns, or is dismissed. * * * If he dies in the service — this is 
a very common rule — if he dies in the service his relatives shall 
receive what he has contributed, and what the firm has contributed. 
Sometimes they try to get in compound interest as well. * * * Now, 
the trouble with these funds is the desire of the members, the con- 
tributors, at any rate, to get their money back with interest if they 
can. And they are getting now very generally in these funds a con- 
dition that if after attaining the pensionable age, after entering upon 
the pension, the amounts which they receive in pension do not amount 
to their contributions, that the difference shall be paid to the rela- 
tives, all of which, of course — all these additional benefits — reduce 
the pension which they are able to get when they retire, ("') 

Asked if old age annuities were increasing, Mr. Manly said: 

No; that is what we call deferred annuities; annuities to commence 
at a certain age. * * * There is something very peculiar in that, 
that nobody, or very few people think it is worth while to make pro- 
vision for their old age by the way of purchasing old age annuities. 
They would much sooner see their money — and that brings us back 
to the old point. They want to see their money. They will invest 
their money for that purpose, invest it sometimes rather badly, I am 
afraid, but still if they invest their money they know it is there and 
they can leave it, but they do not like sinldng as they call it, sink- 
ing the money on the chance of getting it back, even in double or 
quadruple sums hereafter. * * * They will provide for every- 

a Report of Commission on Superannuation in the Civil Service.. 1903. Minutes 
of evidence, pp. 179 and 180. 



CIVIL-SERVICE RETlREMEN-t IlST GREAT BRITAIN. 165 

thing except old age; provide for sickness, provide for strikes, pro- 
vide for anything — anything except old age; and — well, the largest 
industrial company, the "Prudential" devised a scheme — an exceed- 
ingly good scheme it was — by which for a certain fixed contribution 
of 2d. [4 centsl a week commencing under the age of 20 or so, they 
would provide on death the equivalent of Id. [2 cents] a week, and 
that the other penny should be accumulated to provide an old age 
pension at the age of 65, which worked out very favorably, indeed, I 
think — very well indeed; but the number of those policies which they 
issued was very small compared with the total. Of course, if you 
mention the figure by itself, it looks large, but compared to the 
8,000,000 of policies which they have, it is exceedingly small indeed, 
and I do not think that anything more favorable has ever been 
offered. («) 

Report of Commission. 

The results of Mr. Manly's calculations were embodied by the com- 
mission in their report and formed the basis of their recommendation. 
That report is the last of the series of important reports made by the 
various commissions appointed in England to inquire into the sub- 
ject of granting superannuation allowances to persons in the estab- 
lished civil service, and marks a step in the development of the 
English pension system. After noting briefly the conditions under 
which pensions are granted, the commissioners say: 

The simplest and most exact statement of the relations thus 
created between the State and its established servants is that each 
servant is assured of payment of a definite salary or wage during the 
continuity of his service and of provision of a pension for the remain- 
der of his life upon his retirement from the service, either upon 
reaching a certain age or through inability, due to medical disquali- 
fication or infirmity, to continue at work. But it has been contended 
before us that the pension thus secured, though deferred, is as much 
remuneration for the present services as a salary or wage immediately 
paid, that this salary or wage is less than what would have been paid 
had there been no pension, and that the difference thus deducted from 
the natural or market rate of remuneration is more than is necessary 
to provide for the deferred pension; and upon these premises a claim 
has been urged as of right, to further payments to civil servants and 
their representatives on retirement 'or death. (^) 

Pensions acknowledged to he deferred pay. 

The first question in dispute, as to whether pensions are deferred 
pay, was answered by the commissioners in the affirmative, but with 
an important qualification. They held that a deferred pension is 
remuneration for services, as much as an immediate money payment, 
but that it is, in part at least, remuneration for continuity of service 
contingently payable on the continuity being maintained during a 
defined period and not accruing from year to year. 

o Report of Commission on Superannuation in tlie Civil Service 1903. Minutes 
of evidence, p. 180. 
6 Idem. Report, p. vi. 



166 CIVIL-SEE VICE RETIREMENT IN GREAT BRITAIN. 

TJieoretical deductions from salary lield to he only sufficient for pension. 

The second question in dispute, as to whether the deductions made 
from salaries were more than sufficient, even if a fund were created, 
to provide the pensions, was answered by the commissioners in the 
negative. It will be noted, however, that they failed to prove their 
point by any mathematical demonstration as to the amount required 
for pensions and the amount actually deducted from salaries for that 
purpose. They merely entered a general denial. Said they: 

The allegation that the salary of the civil servant is diminished by 
more than is necessary to provide for his contingent pension is en- 
tirely fallacious. It must be remarked that no sum is in fact set 
aside so as to provide for this pension, the pensions being paid as they 
fall due and included as noneffective pay in the yearly estimates sub- 
mitted to Parliament so that the State discharges its contractual 
obligations to its servants by appropriations of the precise sums as 
and when they become due. Nor would the condition of things be 
changed if a pension fund were created by setting aside annual 
amounts which, with accumulations, would be adequate to meet the 
ultimate charges. The amounts so set aside would have to be ascer- 
tained by strict calculation, so as to be enough to meet these charges, 
and hence they could not be more than sufficient for this purpose, 
unless in making the calculations, discounting the future, we pro- 
ceeded upon one rate of interest and then assume a higher rate of 
interest possible during the process of accumulation. (") 

Funding of theoretical contributions held to he not justified. 

Admitting that much might be said in favor of the creation and 
accumulation of a fund as a matter of accounts and as a means for 
charging each year as nearly as possible with the cost of administra- 
tion of that year, the commissioners nevertheless held that the estab- 
lishment of such a fund would necessitate the creation of a new office 
with new labors and new expenses and could hardly be justified. 
Their conclusion, therefore, was that the remuneration must be con- 
sidered as pay plus pension, and as such is offered to and accepted 
by those who enter the service, and ''the theoretical contingent addi- 
tion to the pay is neither more nor less than the theoretically dis- 
counted value of the pension." 

RecoTTiTnendation that pensions he reduced one-quarter and difference 
given in insurance and cash. 

While thus arbitrarily denying that a larger per cent of salary was 
deducted than was necessary to pay pensions, the commissioners never- 
theless conceded that the terms of service might be modified without 
detriment to the service so as to secure a wider distribution of bene- 
fits among all the members of the service, and quoted Mr. Manly as 

« Report of Commission on Superannuation in the Civil Service. 1903. Report, 
pp. vi and vii. 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 167 

authority for their recommendation that pensions be reduced from 
one-sixtieth to one-eightieth of salary for each year of service, and 
the amount thus saved be expended for assurance benefits. 
As set forth in the report of the commissioners: 

Mr. Manly based his calculations upon a division of civil servants 
into three classes — wage earners, lower division clerks, and higher 
staff officers, crediting each class with an approximately normal scale 
of pay and increments of pay, and he took as approximately repre- 
senting the ratio of numbers in each class the figures 83, 15, and 2. 
He used the Life Office tables known as OM, supplemented by some 
facts of experience in the civil service, and he proceeded upon an 
assumed rate of interest of 3 per cent. 

Upon the data thus described Mr. Manly proceeded to ascertain 
the value which would be withdrawn from the remuneration of civil 
servants by reduction of one-quarter of their prospective pensions, 
and then went on to calculate the results of various proposals for 
redistributing this withdrawn quarter amongst members of the 
service. His work was directed towards ascertaining in terms of a 
year's pay, what might be given to the representatives of a civil 
servant dying in the service, or what might be paid in addition to his 
pension to a person retiring, whether on reaching the full limit of his 
possible service or prematurely through incapacity to discharge the 
duties of his position. 

The results communicated to the commission were as follows : 

(1) If the proceeds of this reduction of pension were to be given 
back wholly to the representatives of those who died in the service, 
it would enable the State to give to their representatives nearly two 
years' pay at the time of death. 

(2) If the proceeds of this reduction of pension were to be shared 
by those -who retired from the service as well as by the representatives 
of those who died in it, one year's pay could be allowed to those who 
retired through old age and to the representatives of those who died 
and as many fortieths of one year's pay to those who retired pre- 
maturely from ill health as corresponded to their completed years of 
service. 

These benefits will still leave a slight margin of undistributed value 
which would be just exhausted if, in the case of servants retiring pre- 
maturely, it was provided that in the event of death before the sum 
allowed at retirement plus pension subsequently received amounted 
to one year's salary, the deficient balance should be paid to their 
representatives. On the other hand, the margin would be slightly 
overpassed if one year's pay were given to the retiring servant in 
addition to the pension. C*) 

Having considered these two alternatives, the commission recom- 
mended the latter, saying : 

We arrive at the following conclusion, that in lieu of the present 
system there should be secured pensions on the same conditions, 
except that they should be calculated on the base of one-eightieth 
instead of one-sixtieth for every year of service; plus a year's pay to 

o Report of Commission on Superannuation in the Civil Service. 1903. Report, 
p. xi. 



168 CIVIL-SERVICE EETIREMENT IIST GREAT BRITAIN. 

the representatives of the civil servant dying at any time in the 
service, and to a civil servant retiring after 40 years of service; and 
to a civil servant retiring by reason of ill health with less than 40 years' 
service as many fortieths of a year's pay as years he has served, 
coupled with a provision that if he should die before this payment 
and the pension subsequently received amounted to one year's pay, 
the deficiency should be paid to his representatives. 

The commission recommended further that the new system, if 
Adopted, should be extended to all classes of pensionable servants, 
both wage-earning and salaried. They were of opinion that "the 
advantages of a money payment being secured in case of death with- 
out the pressure of periodic demands for the payment of premiums 
would be generally appreciated," especially by the wage-earners, and 
thought that ''the risk that the habit of prudence would be endan- 
gered by such a provision would not be realized in practice." Said 
they: 

We attach great weight to the principle of similarity of treatment of 
all classes of pensionable servants so that all may feel that they are 
working under a common system, and that in the not unknown cases 
of a servant passing from one class into another no embarrassment 
may arise from the fact that his vested interests are undergoing a 
change which must be taken into account. (") 

Minority rejjort of commission adverse to any change. 

The Courtney Commission was not unanimous in its findings. Two 
of its commissioners, Sir Ralph H. Knox and Mr. E. W. Brabrook, 
dissented from the views of their colleagues, and presented a minority 
report. They held that it was impossible, without increasing the 
burden of the taxpayer, to confer on civil servants greater and more 
uniform advantages than those granted by the existing system. 
They did not consider the plan recommended by the majority of the 
commission as more advantageous or more uniform than the existing 
one. They thought it wise, therefore, to let well enough alone. Said 
they: 

What is called a pension in the civil service is merely the con- 
tinuance, during the later years of life, of pay promised for a whole 
life service, during a period when services, if rendered, would prob- 
ably be useless, and, in many cases, worse than useless. The pay- 
ments made for the 61st or 66th years of life are no more deferred pay 
than those made for the 60th or 65th. 

This is the present excellent charter of the civil service, and it is 
not only under this system, but because of it that the English civil 
service has earned its high reputation for fidelity, zeal, and inde- 
pendence. The advantages of this life provision are given wholly at 
the charge of the State, and in their present form they have attained 

« Report of Commission on Superannuation in the Civil Service. 1903. Report, 
p. xii. 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 169 

the objects in view. The same system has been introduced into very 
many estabhshments of the highest standing in the country, where 
continuous, zealous, and thoroughly honest service are the main 
requirements. C*^) 

The commissioners who signed the minority report dissented 
particularly from the view of their colleagues that a cash payment 
should be made the representatives of the civil servant in case of 
death; in other words, that life insurance should be furnished him 
out of his pension. They contended that it were better that it be 
furnished out of his pay. Reduced pension or reduced pay were 
clearly the only alternatives. Reduced pension meant a change 
of law; reduced pay meant continuance of the existing system, 
since the great majority of the civil servants were doing that very 
thing, buying insurance for their families and paying for it out of 
their salaries. The argument of the minority was as follows: 

The provision most desired by the great mass of the service is 
the payment in case of death of as large an amount as possible, 
approximating at least to the maximum rate of pay which a clerk 
may reasonably hope to reach, and not a sum governed by the 
creeping salary of the year in which he may prematurely die. 

The best, indeed the only method of obtaining this, is the system 
of life insurance, for which it is far better that the civil servant 
should provide from his pay than from his pension. It needs but a 
little self-denial in the early years of life on the rates of pay now 
current to make some provision, and the Government having sanc- 
tioned the deduction of premium from monthly and quarterly 
salaries before the salary is paid, the best security is obtained for 
regularity of payment with the least possible sense of burden on the 
part of the insurer. The scheme now proposed, however, seems to 
offer a premium on improvidence. A man is encouraged to sacrifice 
the provision made for his old age, though but sufficient to maintain 
him in decent comfort, in order that he may avoid the stress of 
making a present payment, all the prevailing influences towards 
thrift being thus inverted. * * * 

That this view is sound is shown by the remarkable statistics of 
insurance referred to by our colleagues as regards civil servants 
whose incomes are in excess of £160 [S778.64] a year. That it also 
applies largely to men whose income is small is evidenced by the 
numerous insurances effected in the postal service, and also may 
be inferred from excellent movements which have lately been made 
in connection with two great friendly societies for insurances for 
their members up to £200 [$973.30]. * * * 

The scheme of our colleagues disturbs the present excellent system 
in order to substitute a benefit which the vast majority of those 
who require it can and do already provide for themselves, and which 
is of no value to those who do not, because they need not provide it. (^) 

a Report of rommission on Superannuation in the Civil Service. 1903. Report, 

p. XV. 

&Idem, pp. xvii and xviii. 



170 CIVIL-SERVICE EETIREMEKT IK GREAT BRITAIN. 

Colloquies which took place between Mr. Manly and the minority 
commissioners at the hearings suggest that the latter may have felt 
that their views would not be questioned by expert authorities. 
Said Mr. Brabrook to Mr. Manly: 

"The existing contract is the compulsory insurance of a deferred 
annuity on nonreturnable premium; and taking off one-fourth of 
that gives an equivalent compulsory endowment insurance of one 
year's salary?" 

''Yes." 

"That would apply to all civil servants whether male or female, 
or whether bachelors or otherwise, would not it?" 

"1 presume I would make it apply to all." 

"If it be the fact that from one-fifth to one-third of the civil 
servants are better otherwise provided for, is not it a little hard to 
make them all accept this compulsory insurance which they do not 
want?" 

"Well—" 

"I have reason, to think that the general body of civil servants, 
having salaries above £160 [$778.64] a year, do now insure their lives 
for the benefit of their families to the extent of two or three years' 
income. Is there any necessity for making compulsory insurance of 
any further sum?" 

"I can not say that there is any necessity for it." 

"You are giving them by the deferred annuity a benefit whicli 
they certainly would not insure voluntarily for themselves." 

"Quite so." 

"And you are now proposing to deprive them of a portion of that 
benefit for the purpose of being applied to an insurance which they 
do provide for themselves?" 

"Yes; but so far as I understand the question we have before us, it 
has rather been raised by the civil service themselves, has it not?" 

"By a portion of the civil service?" 

"By a portion of the civil service." 

"And my own impression is that is not shared by the more well- 
informed portion of the service?" 

"I have no Imowledge, of course, of that." (") 

Toward the close of Mr. Manly's testimony, after he had explained 
the way in which he had made his calculations, Sir Ralph Knox said : 

"The scheme as sketched by you I think is very ingenious, and has 
its attractions. There is a persuasiveness in the direction of trying 
to make a man believe that he is not losing anything. The way in 
which you give ingeniously these sums back, the six years' purchase 
at 60 years of age, and so forth, makes up his old age pension to him 
at that period, and you try to persuade him therefore, that ho is not 
losing anything at all, and I think that is the ingenuity of the scheme, 
but still the fact is none the less that he does gives up upon his maxi- 
mum pay twenty-five per cent of the ultimate pension?" 

"On, yes; what he gives up is the equivalent of what you are 
going to pay to the families or the relatives of those who die." 

« Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 181. 



CIVIL-SEEVICE RETIEEMENT IN GREAT BRITAIN. 171 

"You say you think it would be attractive, but as compared with 
the system of insurance in which a man in these higher classes can 
secure £300 or £400 [$1,459.95 or $1,946.60] from the time that he 
enters the service by a very small payment at 20 years of age, as com- 
pared with that, do you think that this is distinctly an advantage, 
so as to present an attraction?" 

"You must not ask me to say that anything can be substituted 
for life insurance." 

"I am quite satisfied with that answer." 

"We say it is the best thing a man can do to insure his life." (") 

Sir Ralph and Mr. Brabrook not only disagreed with their col- 
leagues, but predicted that the proposed changes in the law would 
not be acceptable to the members of the civil service. In concluding 
their report they said: 

If the present civil servants who are in good health were given the 
option or accepting these changes, we should be surprised if many of 
them should decide to do so, and we are unable to join in the recom- 
mendation of these changes for future entrants, inasmuch as they 
involve a reduction and redistribution of the present pensions which 
to us seem most inexpedient, and would be unequal in their effect. (^) 

WORKMEN'S COMPENSATION ACT OF 19C6. 

The Workmen's Compensation Act was passed in 1906. With that 
exception there was no more legislation relating to the pensioning of 
civil servants, after the passage of the Superannuation Act of 1887, 
until the present year (1909). Persons engaged in manual labor and 
other employees whose annual earnings do not exceed £250 ($1,216.63), 
including civil servants, are entitled, under the terms of the Work- 
men's Compensation Act or one of the schemes under and in sub- 
stitution of that act, to compensation for injuries suffered in the 
course of their employment. Members of the civil service not en- 
titled to compensation for injury under the ordinary law (Workmen's 
Compensation Act) are pensioned under the old law (the Superannu- 
ation Act, 1887), and the Treasury warrant under it. The warrant 
no longer applies to persons entitled to compensation under the 
Workmen's Compensation Act. 

The employees of the Admiralty and War Office have almost uni- 
versally accepted the terms of the Scheme of Compensation (No. 116), 
in case of injury to workmen in government establishments, which 
was established in May, 1903, and revised December, 1907. This is 
accepted by them in lieu of the provisions of the act itself. These 
schemes have to be approved by the Chief Registrar of Friendly Soci- 
eties. This particular scheme for workmen in government establish- 

« Report of Commission on Superannuation in the Civil Service. 1903. Minutes of 
evidence, p. 185. 

^Idem. Report, p. xviii. 



172 CIVIL-SERVICE EETIREMENT IN GBEAT BRITAIN, 

ments was certified by the Chief Registrar of Friendly Societies under 
date of December 16, 1907, as providing scales of compensation not 
less favorable to the workmen and their dependents than the corre- 
sponding scales in the Workmen's Compensation Act, 1906. 

The main features of this scheme are as follows: When a govern- 
ment workman dies from injury received in his work his dependents, 
in case they are wholly dependent on him, receive a sum equal to his 
earnings during the three years next preceding the injury, or the sum 
of £150 ($729.98), whichever is the larger, but not exceeding in any 
case £300 ($1,459.95), and half that sum in case they are only par- 
tially dependent on him, minus in either case the amounts of weekly 
payments that may have been paid in the interval between the time 
of his injury and the time of his death. If the period of his employ- 
ment has been less than three years, the amount of his earnings dur- 
ing the three years is deemed to be 156 times his average weekly 
earnings during the period of his actual employment by the Govern- 
ment. In any case in which the authorities of a department consider 
that the interests of a workman's dependents would be better served 
by a pension to the widow or mother (where there is no widow) than 
by a lump sum, the Treasury may deduct a portion for the dependent 
child or children, if any (this portion must not be more than one-half 
of the entire amount if there is only one child or two-thirds if there 
are more than one), and grant a pension to the widow or mother 
equal to the annuity which the remainder of the lump sum would 
purchase, according to the post-office tables for the purchase of 
immediate annuities. On the death of a workman leaving no depend- 
ents a payment of not more than £10 ($48.67) is made to cover the 
reasonable expenses of his medical attendance and burial. 

When incapacity for work results from the injury, the injured 
workman receives, for the period he is on the "Hurt List" on account 
of the injury, half his average weekly earnings during the previous 
twelve months or for any less period during which he has been 
employed by the Government. In addition, he receives free treat- 
ment in a hospital or free medical attendance at home. If incapac- 
ity for work continues beyond the period for which the workman 
receives "hurt pay," an allowance is paid him. This is twenty-four 
sixtieths of his average weekly earnings during the previous twelve 
months or during any less period of employment in case his capacity 
to contribute to his own support has been totally destroyed, eighteen 
sixtieths when it has been materiaUy impaired, twelve sixtieths when 
it has been impaired, and six sixtieths when it has been but slightly 
impaired. Allowances by way of compensation for injury continue 
only during the continuance of the incapacity, and in cases of doubt 



CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 1Y3 

they are granted in the first instance for a Hmited period^ renewable 
only upon a further medical certificate. (^) 

One or two minor departments have introduced regulations com- 
pelling their employees to purchase life insurance from some private 
company, but such regulations are applicable only to employees not 
entitled to superannuation privileges. The arrangement is at present 
experimental and only upon a very small scale. It is not encouraged 
by the Treasury. Life insurance can be effected and immediate or 
deferred annuities can be purchased either from the National Debt 
Commissioners or through the Post-Office. 

SUPERANNUATION ACT, 1909. 

The general scheme of providing life insurance in substitution of 
part of the pension recommended by the Courtney Commission was 
enacted into law on September 20, 1909, six years after the com- 
mission had submitted its report. In the interval, a nonofficial 
ballot was taken which showed that, contrary to the predictions of 
the minority members of the Courtney Commission, the proposed 
change was favored by a large majority of civil employees. 

Main Features of the Present Law. 

The scheme finally embodied in a bill and presented to Parliament 
differs somewhat from that presented by the Courtney Commission, 
"The changes were made in accordance with the recommendations of 
a committee of actuaries appointed by the Treasury to review the 
work of the commission. They reported that a more liberal life- 
insurance provision could safely be given by reduction of the pension 
one-quarter than that suggested by the commission. Provision was 
accordingly made that for male civil employees entering the service 
after the passage of the act the superannuation allowance should be 
one-eightieth instead of one-sixtieth of the annual salary for each 
year of service, as was the case under the Act of 1859. Authority 
was then given the Treasury to grant to a retiring civil employee 

o Regulations with regard to the payment of salary and wages during sick leave 
are charged throughout the civil service to the effective vote, and do not form part of 
the superannuation scheme. Sick leave on account of injury is granted under depart- 
mental regulations, as in the case of ordinary illness. The regulations vary in differ- 
ent departments. In some cases the ordinary sick leave regulations apply, while in 
others sick leave is allowed at a higher rate of salary for a longer period in cases where 
the illness is due to an accident arising out of the officers' official duties than in cases 
of ordinary illness. In cases of ordinary illness an established civil servant may be 
allowed (if necessary) six months' sick lea-?e on full pay, followed by six months' 
sick leave on half pay. If any further leave is required, and there is a reasonable 
probability of the officer's recovery, he may receive for any such further period of 
sick leave the same rate of pay as if he had been retired on pension. 



174 CIVIL-SEE VICE EETIREMENT IN GEEAT BRITAIN. 

who had served not less than two years, in addition to the super- 
annuation allowance (if any) or the gratuity (if any) available under 
section 6 of the Superannuation Act of 1859, a lump sum equal to 
one-thirtieth (instead of one-fortieth, as recommended by the Court- 
ney Commission) of the annual salary multiplied by the number of 
years of service, provided that the additional allowance should in no 
case exceed one and one-half times the amount of the annual salary 
and emoluments. To discourage continuance in office after the age 
of 65, provision is made that this additional allowance shall be 
reduced one-twentieth for every completed year served after attaining 
that age. By order in council dated November 29, 1898, all persons 
in the established civil service are liable to compulsory retirement at 
the age of 65. The power of retention, in special circumstances, for a 
period not exceeding five years, is, however, lodged with the Treasury. 
This provision in the Act of 1909 for further reducing the pension in 
case of such retention is evidently intended to discourage the exercise 
of such power, and to force practically everybody out of the service 
at the age of 65. In the case of an employee dying after five years' 
service, while still employed in the service, his legal representatives 
receive a gratuity equal to the annual salary of his office and emolu- 
ments. If, however, he is over 65 years of age when he dies the 
amount received by his representatives is reduced by one-twentieth 
for each year of service rendered after he has attained that age, 
another discouragement to remaining in office after the age of 65. 
In the case of an employee dying soon after retirement and before 
the sums actually received by him at the time of his death on account 
of superannuation allowance, together with the sum received by him 
by way of additional allowance, equal the amount of his annual 
salary and emoluments, a gratuity equal to the deficiency is granted 
to his personal representatives. While the act applies only to future 
entrants into the service, the option is given male employees under 
60 years of age of accepting its provisions. In that case, the addi- 
tional allowance payable on retirement is increased by a bonus of 
one-half of one per cent for each year served before the passage of 
the act. With these modifications, the provisions of the various 
superannuation acts will still apply with respect to the qualifications 
for obtaining superannuation allowances and gratuities, to the man- 
ner of reckoning years of service and amount of annual salary and 
emoluments, to the diminution of superannuation allowances, and 
to the determination of questions by the Treasury. 

A bill along these lines ''to amend the Superannuation Acts, 
1834 to 1892," was introduced in the House of Commons on May 19, 
1909. It was referred to a standing committee which considered it on 
July 16, and made some slight verbal changes. The amended bill 
was then sent to the House of Lords on August 30, where section 6 
was amended, and on September 20 it became a law. 



civil-service retirement in great britain. 175 

Discussion of the Act in Parliament. 

The passage of this important bill through Parliament was marked 
by no notable discussion. On the second reading of the bill in the 
House of Commons slight objection was made to it by certain mem- 
bers, because its benefits were not extended to unestablished as well 
as to established members of the civil service, because employees 
over 60 years of age did not come within the purview of the bill, and 
because the compensation to be paid on abolition of office was limited 
to the amount paid on retirement by reason of ill-health. In answer 
to these criticisms, Mr. Hobhouse, financial secretary to the Treasury, 
explained the intent and purpose of the bill, reviewing briefly the 
history of the movement which had led to its introduction, defending 
the points attacked, and laying emphasis on the fact that the bill 
made much more liberal provision for the civil servants than they 
had ever hoped to obtain. As his statement shows the Government's 
attitude toward the measure, the greater part of it is here given. 
Said Mr. Hobhouse :(«) 

I think the reception wliicli the bill has had at the hands of hon. 
gentlemen who have addressed the House has shown not merely that 
the bill itself was desired by the civil servants, but that the provisions 
of the bill, now that they have been examined by the civil servants, 
have proved eminently satisfactory to those servants. I may per- 
haps remind the House in what circumstances this bill has come 
into being. Throughout the four or five years between 1898 and 
1903 there was considerable movement on the part of the civil 
servants in regard to the terms of superannuation, which, owing, I 
think, entirely to a misconception on their part, they thought involved 
a very considerable reduction in their pay, and also resulted in a 
comparatively small number of those who contributed to the pension 
fund ever receiving any return from that fund. Owing to that 
feeling on their part, a movement was started by the civil servants 
asking that the whole terms of superannuation should be recon- 
sidered and altered, and so strong was that feeling that a commission 
was appointed under the presidency of Lord Courtney, to go into 
the whole terms or the superannuation of civil servants, and that 
commission made certain definite recommendations which perhaps 
the House will allow me to recall to their recollection. Before I do 
that, however, I should like to point out that the original demand of 
the civil servants was a very limited one; it was then confined to 
asking that there should be a refund of accumulated deductions 
from pay in case of any civil servant who died while still in the 
service of the State. It was a very limited demand, confined strictly 
to that request. The Courtney Commission made certain definite 
recommendations. They suggested the alteration of the scale of 
pensions from one-sixtieth of the pay for every year's service to one- 
eightieth of pay for every year's service, and they also suggested a 
gratuity of a year's pay in the case of a civil servant dying in the 
service, or upon his retiring after forty years service. They also 

a Parliamentary Debates, House of Commons, Vol. 7, No. 88, p. 766. 



176 CIVIL-SEKVICE EETIEEMENT IN GREAT BEITAIN. 

suggested that in the case of a civil servant who retired with less 
than forty years' service, he should get a gratuity of one-fortieth 
of a year's pay for each year's service. 

These recommendations of the Courtney Commission were submit- 
ted to a plebiscite of the whole of the civil service, or so much of the 
civil service as can be reached by the arrangements of the Deferred 
Pay Committee. I need not go into the whole history of the plebis- 
cites — there were two such plebiscites, and the last was taken on the 
simple issue whether they preferred the Courtney recommendations 
or whether they preferred the terms of the existing civil service super- 
annuation, and the result was an overwhelming declaration — over- 
whelming in strength from those civil servants who were consulted — 
80 per cent in favor of the terms recommended by the Courtney Com- 
mission. When that plebiscite had been taken it was quite clear that 
some alteration in the terms of the existing superannuation scheme 
must be made in order to meet the wishes of the service as a whole. 
There were two distinct defects about the Courtney scheme, and I 
think in that the hon. gentleman will entirely agree with me; namely, 
the hardships inflicted upon those civil servants who died in the 
service were met entirely at the expense of the potential pensioner, 
and the next defect was that there was no provision made for those 
who retired from the civil service before they had completed ten 
years' service, and thus became pensionable, except that gratuity of 
a month's pay for every year, which really was quite inadequate. 
When it was clear that the civil service wanted a reconsideration of 
the terms of superannuation it was quite clear that the pensionable 
treatment which would have to be given — which could be given — 
would have to be considered very carefully from the actuarial point 
of view, and I have had the services of three eminent actuaries who 
went very closely into the whole of the calculations necessary to 
evolve a scheme, and tliis bill is the outcome of that consideration. 
By it a pension of one-eightieth is substituted for the pension of one- 
sixtieth for each year's service given, and as the pension is confined 
to the earnable period, is confined to the maximum of forty years, it 
is clear that the pension is reduced from a pension of two-thirds to a 
pension of one-half. 

In order to make up to the servants the reduction in pension, the 
following proposals are made, and the first of these deals with the 
hardship resulting to the civil servant who retires before he has com- 
pleted ten years' service. Any civil servant who retires after two 
years' service gets in addition to the gratuity wliich he now earns an 
additional allowance of one-thirtieth for every year's service ren- 
dered. That is coupled with a deduction from his earnable allow- 
ance, if he serves to 65 years of age. Practically all civil servants 
have to retire at 65 years of age, with the exception of one or two 
favored individuals, who may serve for a year or two more, and also 
with the exception of a certain number of officers who are employed 
in and about the law courts, who may serve on for practically an 
indefinite period. * * * Next, any civil servant dying after five 
years' service gets a gratuity of a year's pay, and if a civil servant 
dies after he has retired from the service, but before he has drawn a 
whole year's pay, the State makes up to him the equivalent of a 
year's pay, whether by way of additional allowance or by making up 
ithe deficiency of the year's pay. These very favorable conditions, 
far exceeding anything that the civil servants expected^ are dependent 



CIVIL-SEKVICE KETIREMEISTT IN GEEAT BRITAIN. 177 

upon two conditiojis, one that the option must be made within twelve 
months, and the other that the personnel of the service must be in a 
sound state of health. These are actuarial conditions laid down, upon 
which the whole scheme depends, and from which the Treasury would 
be quite unable to depart. 

Then I come to the provisions by which only those officers who 
were under the age of 60 were allowed to opt. The age of 60 is 
the age at which the head of a department has no power any longer 
to retain the services of an officer. An officer can go, if he wishes, 
the moment he reaches 60, and draw his pension. It would be quite 
impossible, having regard to the actuarial calculations on which the 
scheme is based, to permit an officer who attains the age of 60 to 
take advantage of the new scheme and leave the service, carrying off, 
perhaps £1,000 [$4,866.50]. The possibihtyof doing that would clearly 
upset any actuarial calculations whatever. These proposals are to be 
made applicable to all future entrants and they can only be made 
applicable to existing servants if the actuarial calculations on which 
the scheme is based are observed. The whole of these proposals are 
based upon this, that no amount of money shall be taken away from 
the aggregate body of civil servants, and that in maldng these pro- 
posals no additional expenditure shall be incurred by the State. We 
have a block sum wliicli we do not intend to increase or to diminish, 
but within the capacity of that block sum we have redistributed the 
conditions under which the pension is payable. If the wishes of the 
hon. member for Exeter (Sir G. Kekewich) were accepted the other 
resulting benefits of the scheme would have to be reduced in order to 
comply with his wishes. I think it is very much better to give what 
you can to the great majority of civil servants rather than to give an 
advantage to a small class of officials, none of whom will probably be 
in the service for more than two or three years longer. 

A further advantage is given, namely, that all the existing civil 
servants who adopt and take advantage of the scheme are to get 
§ per cent bonus for each year served before the passing of the Act. 
That would be a substantial advantage to the civil servants, and it 
can only be done because in their case the State will escape the lia- 
bility of life assurance which is receivable by all future civil servants 
and all those who accept the scheme — a liability which may press 
heavily upon the State in their case. The scheme does not apply to 
women, because so many of the women who voted were against the 
application of the scheme to them, and although I should be pre- 
pared, if there were any evidence of a desire on the part of a large 
section of the existing women in the civil service to have the scheme 
applied to them to permit such an option, at the same time I have 
seen no indication of any desire on their part to have the scheme made 
optional. 

The proposal to substitute hfe insurance in lieu of a part of the 
pension naturally suggested questions as to the medical fitness of the 
Government clerks as a body. On August 17, Mr. MitcheU-Thomson, 
a member of the House of Commons asked the Secretary to the Treas- 
ury whether the new scheme of the superannuation biU was based 
on any actuarial calculation as to the average expectation of life of 
such existing civil servants as elect to come under the scheme, and if 
35885— S. Doc. 290, 61-2 12* 



178 CIVIL-SERVICE EETIEEMENT IN GEEAT BEITAIN. 

the calculation was based on such an estimated average life, what 
necessity there was for a medical test of each candidate for admis- 
sion to the scheme; and whether it was intended to refuse admission 
to candidates whose lives were not good lives from an insurance point 
of view. There ensued the following : 

.Mr. HoBHOUSE. The proposals as regards existing civil servants 
are based on the assumption that those electing to adopt the new 
scheme are in average good health. 

Mr. Mitchell-Thomson. Will the right hon. gentleman reply to 
the last part of the question? 

Mr. HoBHOUsE. Yes, it is intended to exclude those who can not 
pass a reasonable test. 

Mr. Mitchell-Thomson. Is this scheme based upon actuarial cal- 
culations, and, if so, how does he defend it from the point of view of 
justice in excluding these people ? 

Mr. Speaker. That is a matter of debate. 

Mr. Snowden. Is it intended that they should submit to an 
examination ? 

Mr. HoBHOUSE. Certificates will be required from the heads of 
departments. In accordance with the draft regulations before the 
House, which to some extent I mean to modify, all persons will have 
to submit a statement from the head of their department who are 
beyond a certain age. 

On the second reading of the bill in the House of Lords, on Septem- 
ber 13, a few explanatory remarks were made by Lord Denman in 
regard to the origin of the bill, including the statement that a com- 
mittee of actuaries appointed by the Treasury had ''reported that 
they were able to recommend certain improvements in the scheme 
which would give better results for the men themselves than the 
recommendations of Lord Courtney's commission. This bill was 
regarded as a noncontentious bill," said Lord Denman. "Really all 
it does, or seeks to do, is to distribute in a slightly different way cer- 
tain charges which appear annually on the votes; and therefore I 
trust it may have a smooth and a rapid passage through this House." 

An amendment was brought up, however, by the Marquis of Lans- 
downe, who objected to section 6 of the bill which limited compen- 
sation for abolition of office to the amount allowed on retirement be- 
cause of ill-health and repealed section 7 of the Superannuation Act 
of 1859, the section which gave the Treasury power to grant abolition 
allowances. Said he: 

Now, my lords, I must say that prima facie there seems to me to be 
all the difference in the world between the case of a man who, owing to 
his own misfortune, is obliged to retire from the service, and the case 
of another man whose retirement is imposed upon him by the action 
of the Government of the day. The second case is one certainly of 
exceptional hardship, and I am surprised that it should have been 
thought proper to deprive those civil servants who are the sufferers 
from events of that kind of the special consideration which certainly 
in the time when I knew anything about these matters they used to 
receive. 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 179 

Lord Denman explained that section 6 simply legalized what had 
been the practice of the Treasury, with certain exceptions, for over 
twenty years, since no abolition terms had been granted for that 
length of time. Said heiC*^) 

Perhaps I may be allowed for one or two minutes to go into the his- 
tory of the matter, because this clause has really rather a lengthy 
history, I understand that in 1888 a royal commission presided over 
by the late Lord Ridley, inquired into this matter. They found that 
these abolition terms had given rise to very great abuses and had been 
too often used to get rid of inefficient men. I think in the following 
year there was a debate in the House of Commons on this point, and 
a resolution was proposed protesting against the useless burdens 
which were placed upon the country by these abolition terms. An 
amendment was moved by the Government of the day, and the Gov- 
ernment were defeated on this point, possibly as a result of that de- 
bate. Mr. Goschen — as he was then — in August, 1889, said that for 
some time past these abolition terms had not been allowed; and Mr. 
W. H._ Smith said— 

'Tt is our deliberate intention to legislate on this question at the 
earliest possible period next year." 

Then there was a question put by my noble friend. Lord Wolver- 
hampton, on March 17, 1892. He asked whether it was the intention 
of the Government to introduce a measure relating to the superannua- 
tion of civil servants in accordance with the report of the royal com- 
missioners on civil establishments. Mr. Goschen, in reply, said that 
in view of possible delay before a new superannuation bill could be- 
come law, the Government had taken steps whereby effect had al- 
ready been given to the main recommendations of the royal commis- 
sion on the subject of civil superannuation. He went on to say that 
abolition of office no longer entitled the retiring officer to a special 
rate of pension. 

I believe it was formerly the practice of departments to organize 
and retrench on a very much larger scale than has been the case lat- 
terly, and no doubt abolition terms were much more useful in those 
days than they have since become. Nowadays it is very rarely that 
reductions of this kind are made in departments, and when a reduction 
takes place, if a man is an efficient civil servant a place for him is found 
in some other department. In the case of an inefficient man there is 
no hardship if the reduction takes place on the same terms as in the 
case of a person who is retired on the ground of ill-health. This clause 
really legalizes what has been the practice of the Treasury, with cer- 
tain exceptions, for over twenty years. 

Despite Lord Denman' s explanation, the lords amended section 6 
so as to make it apply ' ' only to persons entering the service after the 
date of the passing of this act," thus leaving those already in the 
service undisturbed in any of the privileges conferred on them by the 
Act of 1859. 

Immediately after the bill became a law regulations were made by 
the Treasury with reference to the conditions under which existing 
civil servants might be allowed to adopt the provisions of the act. 

o Parliamentary Debates, House of Lords, 14 Sep., 1909, Vol. 2, No. 59, p. 1184. 



180 CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 

These stated that apphcation must be made through the head of the 
department, and must reach him on or before December 31, 1909. 
Application must be made on the following form: 

Application to adopt the provisions of the act under the terms of 
section 3 (1) and the treasury regulations of September, 1909. 

(1) Full name of apphcant. 

(2) Department and situation. 

(3) Age. (Give date of birtli.) 

(4) Are you in a good state of health and, so far as you loiow, free 
from any disorder or disease tending to sliorten life? 

(5) Have you had any illness during last 10 years necessitating 
your absence from duty for more than 15 consecutive days? If so, 
state the nature of such ihness. 

(6) Are you now and have you always been of sober and temperate 
habits? 

(7) State the number of days in the under-mentioned years on 
which you have been absent from duty on account of sickness, and 
the cause in each case: 



Calendar year. 


Number of 
days. 


Cause of absence. 


1905. 






1906 






1907 






1908 






1909 












(8) Declaration to be signed by the applicant: 

I hereby apply to be allowed to adopt the provisions of the Super- 
annuation Act, 1909, and I declare that the above statement of par- 
ticulars is true to the best of my knowledge and belief. 

Signature of applicant. 
Date. 

To bejilled in hy the AjJj^licanfs DejMrtment. 

State whether the foregoing particulars correspond with the official 
records relating to the applicant so far as they can be verified, espe- 
cially under the Heads (3), (4), (6), and (7). 

Give the date of the applicant's first Civil Service Certificate. 
The applicant is employed in a pensionable capacity, and his case 
is recommended for the favorable consideration of the Treasury. 
Signature of the head of the department 

or of other authorized officer. 

Date. 

In the case of a civil servant above 55 years of age at the date of 
the passing of the act, the application must be accompanied by 
certificate in the following form, signed by the medical officer of his 
department, or, where this is not practicable, by his regular medical 
attendant : 

1. Are you the medical oflicer of the applicant's department, or his 
private medical attendant ? 

2. How long have you known him? 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 181 

3. Does he appear to be now in good health, and free from any 
disease or disorder tending to shorten hf e ? 

4. Do you beheve him to be and to have been sober and temperate? 

5. Do you consider him to be a person whom you could recommend 
to an assurance society for life assurance at the ordinary rate of 
premium ? 

If not, do you consider him as — 

(a) insurable at an addition to his actual age; or 

(b) uninsurable. 

Signature. 
Date. 

The Treasury may call for further medical evidence as to the con- 
dition of the applicant's health in any case in which they consider it 
desirable. Should the statements made by the applicant be found to 
be untrue or inaccurate in any particular within the knowledge of the 
applicant, the Treasury may cancel the allowance of the application. 

CONCLUSIONS. 

The conclusions to be drawn from Great Britain's century of expe- 
rience in pensioning its civil employees are very definite. That 
experience shows that pensions paid out of the public treasury as pure 
gratuities are certain to be taken into account in fixing salaries, and a 
pension system thus becomes, in effect, a contributory system. As 
soon as the employees realize that they are contributing to their own 
pension, they at once demand that, on separation from the service for 
any cause whatever, the value of their contributions shall be returned 
to them in some form. It is in recognition of the reluctance of human 
nature to give something for nothing — shown first by the officers of 
the Government in taking the pension into account in fixing salaries, 
and next by the employees in their unwillingness to forfeit their con- 
tributions under any circumstance — that the pension system of 
England was modified by the Act of September 20, 1909. 

The full significance of the final action of Parliament in amending 
the various superannuation acts, especially the Act of 1859, by the 
Act of 1909, is not brought out in the Parliamentary debates. It is 
really more than ''merely a redistribution scheme," as characterized 
by Mr. Hobhouse in the House of Commons, for it concedes the right 
of employees to the return of theoretical contributions. Actual 
deductions from salaries of employees were not contemplated by the 
former law. In the recognition by the Government of the fact that 
contributions are virtually exacted from employees through the 
practice of taking pensions into account in fixing salaries, lies the 
significance of this last legislation. In this last act the Government 
puts a legal stamp on the superannuation scheme of England as a 
contributory plan and not a pension system at all in the strictest 



182 CIVIL-SEEVICE EETIREMENT IN GREAT BRITAIN. 

dictionary meaning of the term pension as ' ' a regular stipend paid by 
a government," that is, paid out of a conamon treasury. 

The general impression among people of the United States is that 
Great Britain had first a contributory plan of retirement which was 
found unsatisfactory and which was abandoned in 1859 for a straight 
pension that has proved eminently satisfactory. The well-known 
excellence of the British civil service is cited as sufficient proof of the 
merit of the British pension system and the failure of the contributory 
system which preceded it is taken by many to be conclusive evidence 
of the superiority of a straight pension over any plan which contem- 
plates contributions by the beneficiaries. It should be pointed out, 
however, that the excellence of the British civil service may logically 
be due, in part, to other causes than the pension system. The Civil 
Service Commission was established in England in 1855, just before 
the pension system, and it is safe to say that the appointment to office 
and promotion in office on the basis of merit would have had good 
results in the last half century even had the contributory plan of 
granting retiring allowances not been superseded by the system of 
free and universal pensions. 

Investigation has revealed the fact that very little objection was 
expressed by the employees to the contributory system of 1834 as 
such. It has also been shown that various people of wide official 
experience and consequence have, in recent years, expressed their 
regret that the exaction of definite contributions was ever abandoned. 
The objections to the contributory system were based on the inade- 
quacy of salaries to bear deductions, and the faults in the details of 
the scheme, particularly the lack of provision for returning contribu- 
tions in case of death or resignation and the failure to fund the con- 
tributions and keep the employees' account with the Government 
separate from all others. 

It seems reasonable to suppose that the pension system which 
succeeded this contributory plan would have been popular with the 
employees themselves, if not with the country. Doubtless it was for 
a short time in the beginning. The evidence shows, however, that 
the employees soon ceased to regard the pension as a pure gratuity 
and came to consider it as a benefit paid for by themselves out of 
reductions in salary, and subject to large chances of forfeiture through 
death or resignation, since statistics showed that not more than one 
out of seven entrants into the service remained to the pensionable 
age. Of about 100,000 individuals in the service in 1902, approxi- 
mately 70,000 were members of the Deferred Pay Committee, and 
claimed that pensions were deferred pay. 

This large body of employees held, in the second place, that the 
amount withheld from their salaries for the payment of pensions was 
more than necessary for the purpose. The Courtnev Commission 



CIVIL-SERVICE EETIEEMENT IIST GEEAT BEITAIN. 183 

sustained them in their first contention but refused to admit the sec- 
ond. Without an actuarial investigation, which they were apparently 
unwilling to undertake, it was not possible for the commissioners 
to disprove mathematically the claim of the employees that the amount 
withheld from salaries was excessive, and their denial of the claim 
must, therefore, be regarded as more or less arbitrary. Holding that 
the amounts withheld from salaries were entirely consumed in the 
payment of pensions, they were forced logically to refuse the request 
of the civil servants for a refund of the supposed excess in the form 
of free life insurance. They held, therefore, that the insurance 
could only be secured through a reduction of the pension. 

The important point to note is that the commission conceded that 
something was deducted from the employee's pay for the purpose 
of pensioning him at the end of his period of service. The English 
pension system is, therefore, not a free and absolute system of gratui- 
ties at all but a system of theoretical contributions from the employ- 
ees' salaries, more or less adequate to pay the benefits given. What- 
ever it may have been in the beginning, that is what it has become 
through the policy — a policy sure to develop under a system of gratui- 
ties, human nature being what it is — of taking the pension into con- 
sideration in fixing salaries. 

The English superannuation system having become avowedly a 
contributory system, the question to be investigated then is this: 
Is it a satisfactory form of contributory plan? It is undoubtedly 
more satisfactory to the employees, and justly so, since amended by 
the Act of 1909, than it was formerly under the Act of 1859. The 
problem of devising a satisfactory superannuation scheme for any 
service is one in which human nature is an element as well as arith- 
metic, and the fact should not be ignored that human nature is such 
that no system can be satisfactory to employees unless provision is 
made for the return, in some form, on separation from the service 
of their actual or theoretical contributions. This is abundantly 
shown by the testimony of Mr. Manly, the actuary, in regard to the 
experience of industrial schemes as well as by the British Govern- 
ment's own experience. The Act of 1909 takes cognizance of this 
fact. While the refund of imaginary contributions is accomplished 
by means of a reduction in the pension, this disadvantage is offset 
by the fact that all those in the service will become beneficiaries 
under the scheme and not merely those who live to reach pensionable 
age. 

The amended scheme is undoubtedly more satisfactory, too, than 
the old contributory scheme of 1834 discarded for the pension system 
of 1859. It is more satisfactory because the scheme of 1834 required 
the forfeiture of the contributions — in that case, actual contribu- 



184 CIVIL-SEKVICE EETIREMEISTT IN GREAT BEITAIN. 

tions — on death or resignation, and because, like the pension system, 
it benefited only those who remained in the service and reached 
pensionable age. 

The question whether the present improved system is absolutely 
equitable as between individuals is difficult of satisfactory answer. 
It has been shown that it is more equitable than the old systems, but 
it can not be shown whether the amounts received by the employee in 
the form of pension, insurance, and cash-surrender values correspond 
with the amounts contributed by him, since it has not been ascer- 
tained what percentage of salary is withheld as a contribution. The 
Courtney Commission maintained that the theoretically contributed 
sum is no more, in the aggregate, than the amount required for pen- 
sions, but this does not prove that the sum contributed by any indi- 
vidual may not be more or less than what he should equitably con- 
tribute. A deduction of a given percentage of salary may be entirely 
adequate to furnish given benefits for a young man, while a deduction 
of the same percentage of salary will be quite inadequate to provide 
the same benefits for an older man. The failure of the Courtney Com- 
mission to gratify the request of the employees for a full investiga- 
tion into the subject so that the amounts actually withheld might 
be definitely determined makes any redistribution of benefits merely 
a guess rather than an exact calculation. In the absence of the 
necessary data, it is therefore impossible to answer the question: Is 
the present system absolutely equitable as between individuals ? 

While it is to be assumed that the calculations made by the actu- 
aries are unimpeachable, it is to be noted that those calculations were 
limited in scope and undertaken merely to ascertain what benefits 
could be given by reducing the pension one-quarter. The problem 
of the actuaries was to distribute equitably a definite sum. They 
were not asked to go farther back and devise a contributory scheme 
that would be just as between the State and the individual or equi- 
table as between different classes of individuals. The amended sys- 
tem is held to be merely a scheme of redistribution, but it should not 
be forgotten that only one-quarter of the amount to be distributed 
has been subject to actuarial calculation. Whether the other three- 
quarters have been equitably distributed can not be stated. 

One thing, however, can be definitely stated regarding the present 
system in comparison with a system where the contributions are 
actually instead of only theoretically paid, and where they are funded 
and invested at interest. It is less economical. Under the exist- 
ing system, the necessary sum is appropriated each year out of 
the Treasury for the payment of pensions. This sum amounts 
to from 16 to 20 per cent, in the various departments, of the 
sums paid for salaries. Under a contributory system, the neces- 



CIVIL-SERVICE RETliREMENT IN GREAT BRlTAiiST. 185 

sary sum would be accumulated gradually from many contribu- 
tions invested at interest. By reason of the fact that with the 
help of compound interest at the rate of 3 per cent per annum, 
the sum of a given contribution per annum will double itself in 
the course of a service of 42 years, and at 3^ per cent in 36 years, 
and at 4 per cent in 31 years, it follows that the total contri- 
butions of an employee who serves 40 years need be less than half 
the amount required by direct appropriation from the Treasury to 
give the same pension. The question naturally suggests itself then: 
Why would it not be a wiser distribution of funds, if the British Gov- 
ernment in appropriating a sum for the maintenance of civil estab- 
lishments (including an amount for salaries and another amount for 
pensions) should increase the salaries by the amount of the sum 
spent for pensions but require employees to pay out of their salaries 
a contribution sufficient to meet the cost of pensions? The net 
result of thus preferring a scheme of actual contributions to one of 
theoretical contributions would be a general increase in salaries 
without increasing the appropriation for either salaries or pensions, 
thus effecting a saving of money to the employees that, under present 
conditions, is lost. 

The first lesson for other countries seeking light from the history 
of English superannuation schemes is, therefore, this : 

The logical plan to adopt is a contributory plan, since a pension 
system is certain to be treated as a contributory system, and since 
a pension system is far more costly. It is better, then, to adopt a 
contributory plan in the beginning, worked out on scientific lines, 
with a definite relationship between contributions and benefits to 
make it equitable as between all classes of employees rather than a 
pension in the beginning and finally a patched-up arrangement, the 
fairness of which is open to question. Had the Commissioners of 
1857 modified the contributory plan then in force in accordance with 
actuarial principles, the result would have been a more scientific and 
probably a more equitable arrangement than that which has just 
been arrived at after a half century of discontent and agitation. 
Had the Commissioners of 1857 arranged for the Government to 
assume the cost of all pensions on services rendered up to that time, 
and also increased the salaries of the employees sufficiently to pro- 
vide for the deductions necessary in the individual cases to create 
the pensions called for under a proper scale, together with a refund 
of accumulations in case of separation from the service and such 
insurance as was asked for, the scheme to-day would be self-supporting 
at a cost to the Government through the increase of salaries of about 
one-half of the amount which is now paid out in pensions. 

Other valuable lessons may be learned from Great Britain's 
experience in retiring civil employees. It has been shown that 



186 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 

not all contributory plans are good. To be satisfactory, a contribu- 
tory plan must be based on certain fundamental principles: 

The contributions should be placed in a fund and invested at 
interest under guarantee of the Government, a separate account 
being kept with each contributor. Failure to fund the contributions 
of the employees under the plan of 1834 led to unnecessary misap- 
prehension and discontent. No account having been kept of the 
amounts received by the Government in contributions from the 
employees and the amounts returned to them in pensions, it was 
not known whether the Government had gained or lost by the 
transaction. Nursing the belief that they had paid in more than 
was ever returned to the service, the employees harbored resentment 
against the Government. Failure to fund the contributions resulted 
also in the loss to the employees of the interest which they would 
have received had the contributions been invested. 

The amount of contributions should be determined by the amount 
of the annuity to be granted under the pension scale adopted. The 
annuity should be based on the amount of salary and the length of 
service which latter, in turn, depends largely on the age at entrance 
into the service. The percentage of deduction from salaries should 
vary, then, with the entrance age. This was not the case in the 
English contributory scheme of 1834, which was based on a flat-rate 
assessment for all ages of 2^ per cent on salaries not exceeding £100 
($487) and 5 per cent on salaries exceeding that amount. The result 
was inequitable as between individuals of different ages and different 
salaries, the assessment being smaller than necessary for the older 
ages and in some cases a trifle larger than that required for the 
younger ages. As Doctor Farr pointed out, there was no direct con- 
nection between what was given and what was received. 

There must be sharp differentiation between accrued liabilities and 
future liabilities. The contributions made by present employees 
should be held in reserve to pay future pensions, and not consumed 
in paying pensions for past services. The accrued liabilities must 
be paid by the State or the contributed fund will become insolvent. 
To use the current contributions for the payment of pensions on 
-back services is doubly destructive to any scheme because it not 
only takes the contributions that were paid in to meet future obliga- 
tions, but it cuts off the accumulation of interest. This disastrous 
course was followed under the contributory plan of 1834, as usually 
happens where there is a commingling of assets. The investigation 
made by Messrs. Ansell and Morgan, the actuaries, in 1857, showed 
that had the contributions been funded, the fund would by that 
time have been insolvent. The five per cent deduction from salaries 
was inadequate, not only because there were many employees whose 
age was such as to make a larger deduction than five per cent of 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 187 

salary necessary, but because the deductions of the young employees 
were consumed in paying pensions to old employees. 

Provision should be made for the refund of contributions in case 
of separation from the service, whatever the cause. The lack of 
this provision in the Act of 1834 was felt to be a hardship and an 
injustice. The forfeiture of contributions was especially resented 
when employees died while in the service. 

Under either a contributory or a pension system, the experience 
of Great Britain points to several other fundamental principles: 

Retirement from the service should be made compulsory at some 
given age. If it is merely optional, the purpose of the system is 
likely to be defeated by the continuance of aged people in the service. 
The need of compulsion was felt for years in England before action 
was taken in the matter. Although this phase of the subject was 
clearly brought out in the investigations of the Select Committee of 
1873 and in the inquiry of the Ridley Commission in 1886, and both 
bodies recommended that retirement be made compulsory at the 
age of 65, it was not until 1898 that the recommendation was carried 
out by means of an order in council. The importance of the principle 
is recognized in the most recent legislation on superannuation. The 
Act of 1909 provides for reduction in the superannuation allowance 
in the case of every employee who remains in the service, by favor 
of the Treasury, after reaching the age of 65 years. 

The amount of the retiring allowance should be calculated on the 
basis of the average rather than the final salary. The English 
pension is calculated on the basis of the salary received during the 
last three years of service, but there has been much discussion of this 
provision before the various commissions. Recognizing the fact that 
such a method of calculation is unsatisfactory, since it necessitates the 
use of a salary scale, which is always more or less unreliable, but 
evidently loath to make any great change because of the reduction in 
pension which it would cause, the Ridley Commission recommended 
an extension of the period used as a basis for calculation from three to 
ten years. The calculation of pensions on the ultimate rather than 
the mean salary is also open to special objection on the ground that it 
gives heads of departments and bureaus an incentive to show favor- 
itism in the matter of promotions and demotions in the final years of 
service. 

A provision for life insurance is a desirable adjunct to a retirement 
measure and one that is greatly appreciated by the employees. 
Such a provision has been urged by the British civil employees for 
over half a century. Life insurance benefits are less necessary, 
however, under a proper contributory plan than they have been 
under the contributory and pension plans of England, which made no 
refund of contributions in case of death. Under a plan which turns 



188 CIVIL-SEEVICE BETIREMENT IN GREAT BRITAIN. 

over the deductions from salary with interest to the representatives 
of the employee dying in the service, the need of insurance is only 
acutely felt in the earlier years before the accumulations of the 
employee amount to a considerable sum. During that period, term 
insurance, which can be bought at a very low premium, will provide 
protection. It should be noted that the medical selection exercised 
in carrying out the insurance provisions of the Superannuation Act of 
1909, will necessarily result in improving the already high standard 
of excellence of the British civil service. 



Appendix I. 
SUPERANNUATION ACT OF 1834. 

ANNO QUARTO & QUINTO GULIELMI lY. REGIS. 

[Cap. XXIV.] 

AN ACT To alter, amend, and consolidate the laws for regulating the pensions, compensations, and allow- 
ances to be made to persons in respect of their having held civil ofRces in His Majesty's service. [25th 
July 1834.] 

Whereas by an act passed in the fifty-seventh year of the reign of His late Majesty 
King George the Third, to enable His Majesty to recompense the services of persons 
holding or who have held certain high and efficient civil offices, His Majesty is em- 
powered to grant pensions, as therein provided, to persons who shall have served His 
Majesty, his heirs or successors, in the offices therein mentioned: 

And whereas by an act passed in the sixth year of the reign of His late Majesty King 
George the Fourth, for amending the said recited act, it is enacted, that the several 
other offices therein particularly described shall be deemed to be comprised in the 
several classes of offices in the said recited act respectively specified: 

And whereas it is expedient that the amount of the pensions by the said two acts 
authorized to be granted should as to future pensions be reduced, and the conditions 
under which the same shall be granted be altered and regulated: 

Be it therefore enacted by the King's Most Excellent Majesty, by and loith the advice and 
consent of the Lords spiritual and temporal, and Commons in this present Parliament 
assembled, and by the authority of the same. That from and after the passing of this act 
no pension to be granted to any person in respect of his having served in any one or 
more of the offices of first lord of the treasury, or of one of His Majesty's principal 
secretaries of state, or chancellor of the exchequer, or first lord of the Admiralty, or 
president of the board of commissioners for the affairs of India, or president of the 
committee of council appointed for the consideration of matters relating to trade and 
foreign plantations, shall exceed the sum of two thousand pounds per annum; nor 
shall any such pension be granted to any person unless he shall have held one or more 
of the said offices for a period of not less than two years in the whole, either uninter- 
ruptedly or at different times; nor shall any more or greater number than four such 
pensions hereafter to be granted, be existing or in force at the same time. 

II. And be it further enacted. That from and after the passing of this act no pension 
to be granted to any person in respect of his having served in either or both of the 
offices of chief secretary for Ireland or secretary at war shall exceed the sum of one 
thousand four hundred pounds per annum, nor shall any such pension be granted to 
any person unless he shall have held one or both of the said offices for a period of not 
less than five years in the whole, either uninterruptedly or at different times; nor 
shall any more or greater number than two such last-mentioned pensions be existing 
or in force at the same time. 

III. And be it further enacted, That from and after the passing of this act no pension 
to be granted to any person in respect of his having served in any one or more of the 
offices of one of the joint secretaries of the treasury, or first secretary of the Admiralty, 
or vice president of the committee of commissioners appointed for the consideration 
of matters relating to trade and foreign plantations, shall exceed the sum of twelve 
hundred pounds per annum; nor shall any such pension be granted to any person 
unless he shall have held one or more of the said offices for a period of not less than five 



CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 189 

years in the whole, either uninterruptedly or at different times; nor shall any more or 
greater number than four such last-mentioned pensions be existing or in force at the 
same time. 

IV. And be it further enacted, That from and after the passing of this act the pension, 
not exceeding one thousand pounds, authorized by the said recited act to be granted 
to any person in respect of his having served in any one or more of the offices of one of 
the under secretaries of state, or clerk of the ordnance, or second secretary of the 
Admiralty, or one of the secretaries of the board of commissioners for the affairs of 
India, shall not be granted to any such person unless he shall have held one or more of 
the said offices for a period of not less than ten years in the whole, either uninter- 
ruptedly or at different times; nor shall any more or greater number than six such 
last-mentioned pensions be existing or in force at the same time. 

V. Provided always, and be it enacted, That in case it shall happen that any person 
shall have served His Majesty, his heirs or successors, in more than one class of offices 
herein-before specified, in respect whereof any pension less than two thousand pounds 
may be granted, it shall be lawful to grant, under the regulations aforesaid, to such 
person any pension annexed to the highest class of office in which such person may 
have been employed, whenever the whole period of the service of such person in the 
several offices in which he shall have been employed shall amount to ten years, 
although the period of the service of such person in such highest class shall not have 
extended to the period of five years; Provided always, That such person shall have 
served in such highest class for the period of not less than three years; and in cases in 
which the service of any such person in any class of those offices shall not be sufficient 
to entitle him to the pension of that class, it shall be lawful to grant him a pension 
not exceeding one thousand pounds, provided the period of his aggregate services in 
that and any inferior class or classes or. department of the public service shall 
amount to ten years: Provided also. That there shall not be more than the aforesaid 
number of pensions to that amount existing at the same time. 

VI. And whereas the principle of the regulations for granting allowances of this 
nature is and ought to be founded on a consideration, not only of the services performed 
by the individual to the state, but of the inadequacy of his private fortune to main- 
tain his station in life; 

Be it therefore enacted, That from and after the passing of this act, whenever any 
person shall seek to obtain any one of the pensions before mentioned, his application 
for that purpose shall be made in writing to the commissioners of His Majesty's treas- 
ury, to which he shall subscribe his name, and which shall contain, not only a state- 
ment of the services performed by him, and the grounds on which such pension is 
claimed, but a specific declaration that the amount of his income from other sources 
is so limited as to bring him within the intent and meaning of this act and the prin- 
ciple herein-above declared, and without such declaration no pension as herein- 
before provided or authorized shall be granted. 

VII. Provided always, and be it further enacted. That the several regulations with 
respect to the granting of any of the before-mentioned pensions, and to the receipt 
thereof by the persons to whom such grants may be made, which are contained in 
the said recited act of the fifty-seventh years of King George the Third and the sixth 
year of King George the Fourth, shall continue in full force and effect, and be appli- 
cable to pensions to be granted under the authority of this act, except so far as any 
such regulations are altered or repealed by the enactments contained in this act. 

VIII. And be it further enacted, That from and after the passing of this act an act 
made in the fiftieth year of the reign of His late Majesty King George the Third, to 
direct that accounts of increase and diminution of public salaries, pensions, and allow- 
ances shall be annually laid before Parliament, and to regulate and control the grant- 
ing and payment of such salaries, pensions, and allowances; and two several acts 
passed in the fifty-first year of the reign of His said late Majesty and in the third year 
of His late Majesty King George the Fourth, severally to amend the said act of the 
fiftieth year of the reign of King George the Third; and also an act passed in the 
fifth year of the reign of His said late Majesty King George the Fourth, to amend 
the said act of the third year of His said Majesty's reign; and so much of an act passed 
in the sixth year of the reign of His said late Majesty, to regulate the payment of 
salaries and allowances to British consuls, as respects the allowance to be made to 
such consuls in the nature of superannuation or reward for meritorious public services; 
shall be and the same are hereby repealed, except so far as relates to any matter or 
thing already done under the said acts or either of them. 

IX. And be it further enacted, That from and after the passing of this act the super- 
annuation allowances to be granted to such officers and clerks who shall have entered 
the public service prior to the fifth* day of August, one thousand eight hundred and 



190 CIVIL-SERVICE BETIEEMENT IN GREAT BRITAIN. 

twenty-nine (except only as herein-after is authorized), shall not exceed the follow- 
ing proportions with reference to the amount of their salaries and the periods of their 
services respectively (videlicet): 

To an officer, clerk, or person who shall have served ten years and upwards, and 
imder fifteen years, any annual allowance not exceeding in amount four-twelfths of 
the annual salary and emoluments of his office ; 

For fifteen years and upwards, and under twenty years, not exceeding five-twelfths 
of such salary and emoluments; 

For twenty years and upwards, and under twenty-five years, not exceeding six- 
twelfths of such salary and emoluments; 

For twenty-five years and upwards, and under thirty years, not exceeding seven- 
twelfths of such salary and emoluments; 

For thirty years and upwards, and under thirty-five years, not exceeding eight- 
twelfths of such salary and emoluments; 

For thirty-five years and upwards, and under forty years, not exceeding nine- 
twelfths of such salary and emoluments; 

For forty years and upwards, and under forty-five years, not exceeding ten-twelfths 
of such salary and emoluments; 

For forty-five years and upwards, and under fifty years, not exceeding eleven- 
twelfths of such salary and emoluments; 

And for fifty years or upwards, any annual allowance not exceeding the net amount 
of the salary and emoluments of his office. 

X. And be it further enacted, That from and after the passing of this act it shall not 
be lawful to grant to any officer or clerk who shall have entered the public service 
subsequent to the fourth day of August, one thousand eight hundred and twenty- 
nine, except as hereinafter authorized, any superannuation or allowance exceeding 
the following proportions, with reference to the amount of their salaries and the periods 
of their services respectively (videlicet) : 

To an officer, clerk, or person who shall have served ten years and upwards, and 
under seventeen years, any annual allowance not exceeding in amount three-twelfths 
of the salary and emoluments of his office; , 

For seventeen years' service and upwards, and under twenty-four years, not exceed- 
ing four-twelfths of such salary and emoluments; 

For twenty-four years' service and upwards, and under thirty-one years, not exceed- 
ing five-twelfths of such salary and emoluments; 

For thirty-one years and upwards, and under thirty-eight years, not exceeding six- 
twelfths of such salary and emoluments; 

For thirty-eight years and upwards, and under forty-five years, not exceeding 
seven-twelfths of such salary and emoluments: 

And for forty-five years and upwards, not exceeding eight-twelfths of such salary 
and emoluments: 

And in no case, except as herein-after is especially provided, shall any superannua- 
tion or allowance exceeding two-thirds of the salary and emoluments of any such 
officer, clerk, or person, be granted. 

XI. And be it further enacted, That from and after the passing of this act it shall 
not be lawful to grant any superannuation allowance to any officer or clerk who shall 
be under sixty-five years of age, unless upon certificates from the heads of the depart- 
ment to which such officer or clerk shall belong, and from two medical practitioners, 
that he is incapable, from infirmity of mind or body, to discharge the duties of his 
situation, nor unless he shall have discharged those duties with diligence and fidelity, 
to the satisfaction of the head officer or officers of his department, which shall be cer- 
tified by any two of such head officers if there shall be more than one, or by such 
head officer if there shall be but one; and in case the person claiming such superan- 
nuation allowance shall himself be the head officer, or one of the head officers, then 
such superannuation allowance shall not be granted unless he shall have discharged 
the duties of his situation with diligence and fidelity, to the satisfaction of the com- 
missioners of the Admiralty, if such head officer shall hold any office or situation under 
the control of that department, and in all other cases to the satisfaction of the com- 
missioners of the treasury; and the said commissioners of the Admiralty and treasury 
respectively shall express such satisfaction in their minute recommending or author- 
izing the grant of any such superannuation allowance. 

XII. Provided always, and be it further enacted, That the superannuation allowance 
to be granted to any officer or person after the passing of this act shall not be computed 
upon the amount of the salary enjoyed by him at the time of his retirement, unless 
he shall have been in the receipt of the same, or in the class from which he retires, 
for a period of at least three years immediately before the granting of such superannua- 
tion allowance; and in case he shall not have enjoyed his then existing salary, or 



CIVIL-SEKVICE EETIKEMENT IN GREAT BRITAIN, 191 

have been in such class for that period, such superannuation allowance shall be cal- 
culated upon the average amount of salary received by such person for three years 
next preceding the commencement of such allowance. 

XIII. And be it further enacted. That all compensations and allowances granted, 
or hereafter under this act to be granted, as pensions or superannuations, shallbe paid 
to the persons entitled to receive the same without any abatement or deduction in 
respect of any taxes or duties whatever at present existing. 

XIV. And he it further enacted, That the superannuation allowances authorized 
by this act shall extend to all such civil offices and departments as are set forth and 
enumerated in the schedule to this act, with such exceptions as are specified in the 
said schedule: Provided always, That it shall be lawful for the commissioners of His 
Majesty's treasury, by any order on warrant under the hands of any three or more of 
them, to add to the list of offices and departments enumerated in the said schedule 
any other offices or departments which now exist or may hereafter be created or estab- 
lished, and to place the same, and the officers and persons employed therein, under 
the provisions of this act; in' every which order or warrant the reasons for adding 
any such office or department shall be stated, and a copy of every such order or warrant 
shall be laid before Parliament within one month after the making thereof, if Parlia- 
ment shall be then sitting, and if not, then within one month after the then next 
sitting of Parliament; and all the provisions of this act, and all the powers, authorities, 
regulations, restrictions, and clauses therein contained, shall in every such case apply 
and be put in force with respect to every office or department which shall be so added 
as aforesaid as fully and effectually, to all intents and purposes, as if they had been 
originally specified and enumerated in the said schedule. 

XV. Provided always, and be it further enacted, That nothing in this act contained 
shall extend or be construed to extend to or authorize the adding to such list any 
offices held under military or naval commissions, entitling the holders of the same 
to half pay, or any military or naval allowance in lieu of or in addition to half pay, 
allowed under the regulation of any order of Ilis Majesty in council to any persons 
for services in His Majesty's army, navy, or ordnance, or any offices in any of His 
Majesty's courts at Westminster or Dublin, orany other of His Majesty's courts of justice 
elsewhere, or the comptroller of His Majesty's exchequer, or any offices in relation to 
which the granting of any allowances for past services has been specially regulated 
by any act, or any offices held as sinecures, or executed principally by deputy. 

XVI. And be it further enacted. That no compensation hereafter to be made or 
superannuation allowance to be granted in respect of civil services to any person 
entitled to half pay in the army, ordnance, navy, or marines, who shall have been 
appointed to the civil service subsequently to the fourth day of August, one thousand 
eight hundred and twenty-nine, shall in any case, except as in this act is specially 
provided, exceed in the whole (computing his half pay in such compensation or 
allowance) the amount of two-thirds of the salary and emoluments of the office relin- 
quished by him: Provided always, That nothing in this act contained shall extend 
or be construed to extend to entitle any superintendent of a dock yard or other estab- 
lishment in the civil department of the navy, who shall have held any civil appoint- 
ment prior to the fifth day of August, one thousand eight hundred and twenty-nine, 
to any superannuation allowance under this act beyond the amount stipulated by 
the terms on which he shall have accepted the office of superintendent, or the amount 
established by any order of His Majesty in council concerning superintendents. 

XVII. Provided always, and he it further enacted, That in any case in which it shall 
appear to the commissioners of His Majesty's treasury that any special circumstances 
afford to any officer or clerk in the several offices or departments mentioned in the 
schedule to this act, or in the addition authorized to be made thereto, who is not within 
the exceptions therein contained, a just claim to an amount of superannuation allow- 
ance not authorized by this act, or exceeding the amount therein specified with 
reference to the length of his service, it shall be lawful for the commissioners of His 
Majesty's treasury to grant, or give authority for granting, any special superannuation 
which such officer or clerk shall appear to them to deserve; but in every such case the 
grounds on which such special superannuation shall be granted or authorized shall 
be stated in the grant thereof, or in the authority for granting the same, and also 
entered in the minutes of the treasury, and shall likewise be laid before Parliament 
within one month after the fifth day of January in each year, if Parliament be sitting 
during that period, or if not, then within one month after the ensuing meeting of 
Parliament. 

XVIII. And be it further enacted. That no compensation for any office abolished, 
nor any special allowance or remuneration for good services to any person holding or 
having held any civil office in any public department, shall be charged upon the 
incidents or any other fund of any such department; and that no such compensation, 



192 CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. 

nor any allowance or compensation in the nature of superannuation or retired allow- 
ance or reward to any such person in respect of his having held any public office or 
employment, or having been engaged in any public service, shall be granted, allowed, 
or paid, other than under the authority of an order of His Majesty in council, or by 
the commissioners of His Majesty's treasury, or any three or more of them. 

XIX. And be it further enacted and provided, That every person to whom any com- 
pensation or allowance, in consequence of the abolition or reduction of office, shall 
hereafter be granted shall at all times, when called upon, be liable to fill, in any part 
of His Majesty's dominions in which he shall have already served, any public office 
or situation under the Crown for which his previous public services may render him 
eligible; and that if he shall decline, when called upon so to do, to take upon himself 
such office or situation, and execute the duties thereof satisfactorily, being in a com- 
petent state of health, he shall forfeit his right to any compensation or allowance 
which may have been granted to him in respect of any former services. 

XX. Provided always, and be it further enacted. That in case any person enjoying any 
superannuation allowance, in consequence of retiring from office on account of age, 
infirmity, or any other cause, or enjoying any compensation for past services upon 
the abolition or reduction of office, shall be appointed to fill any office in any public 
department, every such allowance or compensation shall cease to be paid for any 
period subsequent to such appointment, if the annual amount of the profits of the 
office to which he shall be appointed shall be equal to those of the office formerly 
held by him, and in case they shall not be equal to those of his former office, then 
no more of such superannuation allowance or compensation shall be paid to him than 
what with the salary of his new appointment shall be equal to that of his former office, 

XXI. Provided always, and be it further enacted. That nothing herein contained 
with respect to compensation, superannuation, or allowance for civil services, shall 
extend or be construed to extend to any military or naval half pay, or allowance in 
lieu of half pay, or to any military or naval allowance or pensions granted or to be 
granted, uncler the regulations of any order of His Majesty in council, in any of the 
respective departments of the commissioners of the Admiralty, the secretary at war, 
and the master general of the ordnance, except as herein-after is provided with respect 
to the same. 

XXII. And be it further enacted, That between the first day of February and the 
twenty-fifth day of March in every year, or if Parliament shall not be sitting during 
any part of that period, then within twenty days after the next meeting of Parliament, 
there shall be laid before both Houses of Parliament an account of every increase and 
diminution which shall have taken place within the preceding year, ending on the 
thirty-first day of December, in the number of persons employed in all public offices 
or dej^artments under the Crown, and in the salaries, emoluments, allowances, and 
expences which shall have taken place or been paid, granted, received, or incurred 
for and in respect of all officers and persons belonging to or employed in all such 
public offices or departments, specifying the amount and nature thereof, and dis- 
tinguishing every increase and diminution in the amount of all allowances or com- 
pensations granted as retired allowances or superannuations to any person having 
held any office, place, or employment in any such public office or department, and 
also the time and length of service of every such person, and the amount of the salary 
and emoluments received by such person immediately preceding his superannuation 
or retirement, and the nature of his services, and the grounds upon which such 
increase or diminution in the establishment of every such public office or department, 
or of any such salary, emolument, allowance, compensation, or superannuation, shall 
have been granted or made; and also specifying the name of every person receiving 
such allowance or compensation who may have died in the course of the year, together 
with the amount of the annual allowance payable to such person. 

XXIII. Provided always, and be it further enacted. That accounts of all compensa- 
tions for offices abolished, and of all allowances in the nature of superannuation or 
retired allowances to all other persons in respect of their having held any public 
office or employment under the Crown, shall annually, at the period lastly provided, 
be laid before the Commons House of Parliament. 

XXIV. And whereas the scale of allowance under this act specifies the highest 
rate which a superannuated officer can receive unless his case be specially laid before 
Parliament: 

And whereas it is expedient that the Lords of His Majesty's Treasury and the Lords 
of the Admiralty for the time being, respectively, should consider the health, age, 
meritorious conduct, and other circumstances of each party applying for a superan- 
nuation allowance, in order to exercise their discretion in fixing the amount of such 
allowance, subject always to the limitation prescribed by this act: 

And whereas it is expedient that Parliament should be made acquainted with the 
manner in which such discretion shall be exercised; 



CIVIL-SERVICE RETIEEMENT IN GREAT BRITAHST. 193 

Be it therefore enacted, That all orders of His Majesty in council, and minutes of the 
lords of the treasury, which shall at any time be framed or passed laying down any 
general rule or regulation respecting the granting of superannuation allowances, shall 
within one month of the date thereof, if Parliament should be then sitting, or if not, 
then within one month after the commencement of the next ensuing session of Par- 
liament, be laid before the two houses of Parliament, respectively. 

XXV. Provided always, and he it further enacted, That all half pay and allowances 
in lieu of half pay in the several departments of the army, ordnance, navy, and 
marines, and all military and naval allowances or pensions granted or which shall be 
granted in any of such departments under the authority of any order in council, 
shall be annually laid before the Commons House of Parliament in separate estimates, 
at the same time with the ordinary estimates of those respective departments, and" 
shall be kept distinct from all pensions, compensations, superannuation and retired 
allowances in any of the civil offices of those departments, respectively. 

XXVI. And he it further enacted, That the compensations, superannuations, and 
allowances authorized as well by this as any former act or acts shall, when not specially 
provided for by Parliament, be charged upon and paid and payable by the respective 
departments or offices in which the persons receiving such allowances shall have 
served. 

XXVII. And whereas the commissioners of the treasury did, by a minute dated 
the fourth day of August, one thousand eight hundred and twenty-nine, record their 
intention to adopt certain regulations with a view to reduce prospectively the charge 
incurred in providing for superannuation allowances, of which notice was given in the 
several public departments, for the information of those who should thereafter enter the 
public service: And whereas, in pursuance of the said minute, an annual abatement 
hath been made from the salaries and emoluments of the several persons who have 
entered the public service subsequent to the date thereof; and whereas it is expedient 
to continue such abatement in those cases, and to extend it to others, as hereinafter 
provided: Beit therefore further enacted. That from and after the passing of this act 
there shall be an annual abatement made, in quarterly proportions, by the proper 
officer in each respective department, from the salaries and emoluments of the several 
officers and persons employed in the several civil offices and departments specified 
in the schedule to this act, or to be specified in the addition authorized to be made 
thereto, and not within the exceptions thereof, who have since the date of the said 
minute entered or shall hereafter enter the public service, in such manner and under 
such directions as shall from time to time be given in this respect by the commissioners 
of the treasury or of the Admiralty, as the case may be; the amount of which abate- 
ment shall be according to the respective rates following, that is to say: 

From salaries and emoluments not exceeding the annual sum of one hundred 
pounds, an abatement after the rate of two pounds ten shillings per centum; 

And from salaries and emoluments exceeding one hundred pounds, five pounds per 
centum; . 

And in the cases of all persons whomsoever at present holdmg officeand entitled 
to superannuation allowance under this act, who shall have been appointed to such 
office subsequently to the issue of the minute of the lords commissioners of His 
Majesty's treasury, bearing date the fourth day of August, one thousand eight hundred 
and twenty-nine, for the future regulation of the several civil departments of the 
public service, and who shall hereafter, upon promotion, obtain any increase_ of 
salary or allowances in respect of their offices, an annual abatement, after the like 
rates, respectively, shall be made from the amount of such increase from time to time, 
commencing from the period when the same shall take place. 

XXVIII. And he it further enacted, That it shall be lawful for the person or persons 
at the head of any department in which any fees or other sources of profit may form 
part of the emoluments of any office in such department, to fix, with the approbation 
of the commissioners of His Majesty's treasiu-y , or for the commissioners of the Admii-alty 
if the office shall be in that department, an average sum upon which the compensation 
or superannuation allowance shall be granted, as well as the sum to be annually 
abated, as hereinbefore provided, from such person's salary in respect of such emolu- 
ments, which sum so to be fixed shall not exceed the average amount of such emolu- 
ments for the three last preceding years. j i n ^ n 

XXIX. And he it further enacted. That the vice-treasurer of Ireland shall at all 
times, when required so to do by the commissioners of His Majesty's treasury,transmit 
to the said commissioners accounts of the execution of this act, and of all matters and 
things relating thereto, in his execution of the powers thereof, in such manner and 
form, and containing such particulars as he shall in that behalf be from time to time 
directed. 

35885— S. Doc. 290, 61—2 13* 



194 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAHsT. 



XXX. Provided always, and be it further enacted, That nothing in this act contained 
shall extend or be construed to extend to give any person an absolute right to com- 
pensation for past services, or to any superannuation or retiring allowance under this 
act, or to deprive the commissioners of His Majesty's treasury, and the heads or prin- 
cipal officers of the respective departments, of their power and authority to dismiss 
any person from the public serAdce without compensation. 

XXXI. And be it further enacted, That this act may be amended, altered, or repealed 
by any act or acts to be passed in this present session of Parliament. 

Schedule referred to in the aforegoing act. 



Offices or departments. 



Exceptions. 



Treasury 

OflBce of vice-treasurer in Ireland. 
Office of privy council. Great Britain 
and Ireland. 

Office of committee for trade 

Offices of secretaries of state 

Office of secretary for Ireland 

Alien office. 

Consuls-general and consuls restricted 
from being engaged in trade. 

State paper office. 

Office of registrar of slaves. 

Police offices in London and Middle- 
sex and borough of South wark. 

Commander of the forces office, 
England and Ireland. 

Quartermaster-general's office, ditto.. 

Adjutant-general's office, ditto 

War office 

Army medical board. 

Board of general officers 

Chaplain-general's office. 

Judge-ad vocate-general's office 

Army pay office 

Ordnance office 



Chelsea and Kilmainham hospitals. 

Royal Military College 

Royal Military Asylum 



Admiralty and naval establishments 
at home and abroad. 



Navy pay office 

Tax office and stamp office. 

Customs. 

Excise. 

Post-office 

Royal mint 

Audit office. 

Comptrollers of army accounts 



Lords of the treasury and joint secretaries. 

President of the council. 

President and vice-president. ' 
Secretaries and under secretaries. 
Chief secretary, the parliamentary counsel for 
Irish affairs. 



[Commander in chief and his secretary, and 
I officers acting under military commissions. 

Secretary at war. 

Officers acting under military commissions. 

Judge-advocate-general . 

Paymaster-general. 

Master-general. 

Clerk of the ordnance. 

Surveyor-general. 

Principal storekeeper. 

Secretary to master-general, and all persons 
holding their situations by military commis- 
sion. 

Treasurer of the ordnance. 

Persons who, being military officers, may be 
entitled to full or half pay as siich, subject,, 
however, to the provisions of this act. 

Lords of the admiralty and secretaries. 

Superintendents of dock yards and victualling 
yards, and naval medical establishments or 
hospitals, not having been employed in the 
civil service of the navy prior to the fifth day 
of August, One thousand eight hundred and 
twenty-nine, and officers acting by virtue of 
naval or military commissions or warrants, 
and entitled to half pay. 

The treasurer. 



The postmaster-general. 
The master of the mint. 



CIVIL-SERVICE EETIEEMENT IN GEEAT BEITAIK. 
Schedule referred to in the aforegoing act — Continued. 



195 



Offices or departments. 



Exceptions. 



National debt office. 

Office of comptroller of the exchequer. 

Exchequer bill office. 

Stationery office. 

Office of woods, forests, works, etc . . . 

King's remembrancer's office in the 
exchequer of Scotland. 

Office of auditor of the exchequer of 
Scotland. 

Signet and privy seal offices, Scot- 
land. 

British and Irish fishery. 



The comptroller-general. 
First commissioner. 
Auditor. 



IRELAND. 



Office of teller of the exchequer 


The teller. 


nommiRRa,riq,t 


Persons holding aommissions entitling them to 
half pay, subject, however, to the provisions 






of this act. 


Hibernian school for soldiers' chil- 




dren. 




Board of education. 




Privy seal office. 




Board of charitable donations and 




bequests. 




Registrar of deeds. 





Appendix II. 
SUPERANNUATION ACT, 1859. 

[22 Vict., Chapter 26.] 

AN ACT To amend the laws concerning superannuations and other allowances to persons having held 
civil offices in the public service. [19th April, 1859.] 

Whereas an act was passed in the session holden in the fourth and fifth years of 
King William the Fourth, chapter twenty -four, "to alter, amend, and consolidate the 
laws for regulating the pensions, compensations, and allowances to be made to persons 
in respect of their having held civil offices in His Majesty's service; " 

And whereas by an act of the session holden in the twentieth and twenty-first years 
of Her Majesty, chapter thirty-seven, section twenty-seven of the first-recited act, 
by which an abatement was du-ected to be made from the salaries of civil servants 
entitled to superannuation allowance, was repealed ; 

And whereas it is desirable further to amend the said act as hereinafter mentioned : 

Be it therefore enacted by the Queen's Most Excellent Majesty, by and with the advice and 
consent of the Lords, spiritual and temporal, and Commons, in this present Parliament 
assembled, and by the authority of the same, as follows: 

I. Sections ten," eleven, thirteen, fourteen, fifteen, seventeen, nineteen, and 
twenty-four of the said act of the fourth and fifth years of King William the Fourth 
are hereby repealed, but such repeal shall not affect any pension, compensation, or 
superannuation allowance granted or act done before the passing of this act. 

II. Subject to the exceptions and provisions hereinafter contained, the superan- 
nuation allowance to be granted after the commencement of this act to persons who 
shall have served in an established capacity in the permanent civil service of the 
state, whether their remuneration be computed by day pay, weekly wages, or annual 
salary, and for whom provision shall not otherwise have been made by act of Parlia- 
ment, or who may not be specially excepted by the authority of Parliament, shall 
be as follows (that is to say) : 



196 CIVIL-SERVICE EETIREMENT IN GREAT BRITAIN. 

To any person who shall have served ten years and upwards, and under eleven 
years, an annual allowance of ten-sixtieths of the annual salary and emoluments of 
his office; 

For eleven years, and under twelve years, an annual allowance of eleven-sixtieths 
of such salary and emoluments; 

And in like manner a further addition to the annual allowance of one-sixtieth in 
respect of each additional year of such service, until the completion of a period of 
service of forty years, when the annual allowance of forty-sixtieths may be granted; 
and no addition shall be made in respect of any service beyond forty years: 

Provided always, That if any question should arise in any department of the public 
service as to the claim of any person or class of persons for superannuation under this 
clause, it shall be referred to the commissioners of the treasury, whose decision shall 
be final. 

III. Nothing herein contained shall interfere with the grant, to the officers and 
clerks who entered the public service prior to the fifth day of August, one thousand 
eight hundred and twenty-nine, of such superannuation allowances as might hereafter 
have been granted to them under section nine of the said act of the fourth and fifth 
years of King William the Fourth, or shall prevent, restrict, or diminish any other 
superannuation allowance, pension, gratuity, or compensation which, if this act had 
not been passed, might hereafter have been granted to any person who shall have 
entered the public service before the passing of this act, but, except as aforesaid, the 
provisions hereinafter contained shall apply as well to persons who have already 
entered the public service, whether before or after the said fifth day of August, one 
thousand eight hundred and twenty-nine, as to those who may hereafter enter the 
public service. 

IV. It shall be lawful for the commissioners of the treasury from time to time, by 
any order or warrant, to declare that for the due and efficient discharge of the duties 
of any office or class of offices to be specified in such order or warrant, professional or 
other peculiar qualifications, not ordinarily to be acquired in the public service, are 
required, and that it is for the interest of the public that persons should be appointed 
thereto at an age exceeding that at which public service ordinarily begins; and by 
the same or any other order or warrant to direct that when any person now holding 
or who may hereafter be appointed to such office or any of such class of offices shall 
retire from the public service, a number of years not exceeding twenty, to be specified 
in the said order or warrant, shall, in computing the amount of superannuation allow- 
ance which may be granted to him under the foregoing section of this act, be added 
to the number of years during which he may have actually served, and also to direct 
that in respect of such office or class of offices the period of service required to entitle 
the holders to superannuation may be a period less than ten years, to be specified in 
the order or warrant; and also to direct that, in respect of such office or class of offices, 
the holder may be entitled to superannuation, though he may not hold his appoint- 
ment directly from the Crown, and may not have entered the service with a certificate 
from the civil service commissioners: Provided ahoays, That every order or warrant 
made under this enactment shall be laid before Parliament. 

V. It shall be lawful for the commissioners of the treasury to grant to any person 
who, being the holder of an office in respect of which a superannuation allowance may 
be granted, but not having completed the period which would have entitled him 
to a superannuation allowance, is compelled to quit the public service by reason of 
severe bodily injury, occasioned, without his own default, in the discharge of his 
public duty, a gratuity not exceeding three months' pay for every two years of service, 
or a superannuation allowance not exceeding ten-sixtieths of the annual salary and 
emoluments of his office. 

VI. It shall be lawful for the commissioners of the treasury to grant to any person 
who, being the holder of an office in respect of which a superannuation allowance may 
be granted, is constrained, from infirmity of mind or body, to leave the public service 
before the completion of the period which would entitle him to a superannuation 
allowance, euch sum of money by way of gratuity as the said commissioners may 
think proper, but so as that no such gratuity shall exceed the amount of one month's 
pay for each year of service. 

VII. It shall be lawful for the commissioners of the treasury to grant to any person 
retiring or removed from the public service in consequence of the abolition of his 
office, or for the purpose of facilitating improvements in the organization of the depart- 
ment to which he belongs, by which greater efficiency and economy can be effected, 
such special annual allowance by way of compensation as on a full consideration of the 
circumstances of the case may seem to the said commissioners to be a reasonable and 
just compensation for the loss of office; and if the compensation shall exceed the 
amount to which such person would have been entitled under the scale of superannu- 



CIVIL-SEEVICE RETIREMENT IN" GREAT BRITAIK. 107 

ation provided by this act if ten years were added to the number of years which he 
may have actually served, such allowance shall be granted by special minute, stating 
the special grounds for granting such allowance, which minute shall be laid before 
parliament, and no such allowance shall exceed two-thirds of the salary and emolu- 
ments of the office. 

VIII. It shall not be lawful for the commissioners of the treasury to grant the full 
amount of superannuation allowance which can be granted under this act to any 
person not being the head officer or one of the head officers of a department, unless 
upon produx;tion of a certificate (signed by the head officer of the department, or by 
two head officers, if there be more than one) that he has served with diligence and 
fidelity to the satisfaction of such head officer or officers; and in every case in which 
any superannuation allowance is granted, after the refusal of such certificate, the 
minute granting it shall state such refusal and the grounds on which the allowance is 
granted. 

IX. Provided, That it shall be lawful for the commissioners of the treasury to grant 
to any person any superannuation, compensation, gratuity, or other allowance of 
greater amount than the amount which might be awarded to him under the foregoing 
provisions, when special services rendered by such person, and requiring special 
reward, shall appear to them to justify such increase, but so that such allowance shall 
in no case exceed the salary and emoluments enjoyed by the grantee at the time of 
retirement, and the grounds of every such increase shall be stated in a minute of the 
treasury, which shall be laid before parliament; and it shall be lawful for the said com- 
missioners to grant to any person any such allowance of less amount than otherwise 
would have been awarded to him where his defaults or demerit in relation to the public 
service appear to them to justify such diminution. 

X. It shall not be lawful to grant any superannuation allowance under the provisions 
of this act to any person who shall be under sixty years, unless upon medical certifi- 
cate to the satisfaction of the commissioners of the treasury that he is incapable, from 
infirmity of mind or body, to discharge the duties of his situation, and that such 
infirmity is likely to be permanent. 

XI. Every person to whom a superannuation or compensation allowance shall have 
been granted before he shall have attained the age of sixty years shall, until he has 
attained that age, be liable to be called upon to fill, in any part of Her Majesty's do- 
minions in which he shall before have served, any public office or situation under the 
Crown for which his previous public services may render him eligible; and if he shall 
decline, when called upon to do so, to take upon him such office or situation, or shall 
decline or neglect to execute the duties thereof satisfactorily, being in a competent 
state of health, he shall forfeit his right to the compensation or superannuation allow- 
ance which had been granted to him. 

XII. And whereas it will be for the advantage of the public service that officers 
holding employments entitling them to superannuation allowances under this or other 
acts shall be eligible for other public employments at home and abroad, without for- 
feiting their claims to such allowances. 

Every officer already or hereafter to be transferred from employment entitling him 
to superannuation allowance to public employment under the Crown not so entitling 
him shall be entitled, on his ultimate retirement from the public service, to the same 
allowance as if he had continued to hold the vacated appointment and at the same 
rate of salary as when the same was vacated, subject nevertheless to the conditions 
which would in that case have been applicable with respect to the grant of such allow- 
ance; provided that it shall be lawful for the commissioners of the treasury, in the 
case of officers transferred to governorships and lieutenant-governorships of colonies, 
and other high offices abroad, conferred for a limited period, to grant such super- 
annuation allowance to such officers on the expiration of such term of service without 
a renewal of public employment; but any officer to whom such grant is made while 
under the age of sixty years shall be subject to the same liability to be called upon to 
fill office under the Crown, as herein provided concerning other persons under that 
age to whom like allowances are granted . 

XIII. All orders, warrants, and minutes by this act directed to be laid before 
Parliament shall be laid before both Houses of Parliament within fourteen days after 
the making thereof if Parliament be sitting, and if Parliament be not sitting, then 
within fourteen days after the next meeting thereof. 

XIV. No pension shall be granted under the provisions of section six of the act of 
the fifty-seventh year of King George the Third, chapter sixty-five, to any person 
who shall not have had a seat in one of the Houses of Parliament during the period 
or one-half of the period for which he has held oflBce, aa in the said section is men- 
tioned. 



198 CIVIL-SEEVICE EETIREMENT IN GREAT BRITAIN. 

XV. The several sections mentioned in the schedule hereto of the several acts of 
Parliament, also therein mentioned, shall be construed as if this act, instead of the 
said act of the fourth and fifth years of the reign of King William the Fourth, had 
been referred to in the said sections; and such other enactments as refer to the scale 
of superannuation allowance established by the provisions hereby repealed of the 
said act of King William the Fourth shall be construed as if the scale established by 
this act had been referred to. 

XVI. All superannuations, compensations, gratuities, and other allowances granted 
or hereafter under this act to be granted shall be paid to the persons entitled to receive 
the same without any abatement or deduction in respect of any taxes or duties what- 
ever at present existing, except the tax upon pi'operty or income. 

XVII. For the purposes of this act, no person hereafter to be appointed shall be 
deemed to have served in the permanent civil service of the State unless such person 
holds his appointment directly from the Crown, or has been admitted into the civil 
service with a certificate from the civil service commissioners; nor shall any person, 
already appointed to any office, be held to have served in the permanent civil service 
as aforesaid, unless such person belong to a class which is already entitled to super- 
annuation allowance, or to a class in which, if he had been appointed thereto subse- 
quently to the passing of this act, he would, as holding his appointment directly 
from the Crown, or as having been admitted into the civil service with such certificate 
as aforesaid, have become entitled to such allowance; and no person shall be entitled 
to any superannuation allowance under this act, unless his salary or remuneration 
has been provided out of the consolidated fund of the United Kingdom of Great 
Britain and Ireland, or out of monies voted by Parliament. 

XVIII. So much of the said act of the fourth and fifth years of King William the 
Foiu-th, chapter twenty-four, as is now in force and not hereby repealed, and this 
act, shall be construed together as one act. 

XIX. It shall be sufficient, in citing this act, to use the expression "The super- 
annuation act, 1859." 



5& 6 W. 4. c. 42. s. 

7 W. 4. & 1 Vict. c. 

8 & 9 Vict. c. 100. s 
13 & 14 Vict. c. 89. 



SUPERANNUATION ACT, 1887. 

[50 & 51 Vict., Chapter 67.] 
AN ACT To amend the superannuation acts, 1834 and 1859, and for other purposes. [16th September 1887.] 

Be it enacted by the Queen's Most Excellent Majesty, by and with the advice and consent 
of the Lords spiritual and temporal, and Commons, in this present Parliament assembled, 
and by the authority of the same, as follows: 

1. (1) Where a person employed in the civil service of the state is injured — 
(a) in the actual discharge of his duty; and 

(6) without his own default; and 

(c) by some injury specifically attributable to the nature of his duty, 
the treasury may grant to him, or, if he dies from the injury, to his widow, his mother, 
if wholly dependent on him at the time of his death, and to his children, or to any of 
them, such gratuity or annual allowance as the treasury may consider reasonable, and 
as may be permitted by the terms of a warrant under this section. 

(2) The treasury shall forthwith after the passing of this act frame a warrant regu- 
lating the grant of gratuities and annual allowances under this section, and the war- 
rant so framed shall be laid before Parliament. 

(3) Provided, That a gratuity under this section shall not exceed one year's salary 
of the person injured, and an allowance under this section shall not, together with any 
superannuation allowance to which he is otherwise entitled, exceed the salary of the 
person injured, or three hundred pounds a year, whichever is less. 

2. (1) Where a civil servant is removed from his office on the ground of his inability 
to discharge efficiently the duties of his office, and a superannuation allowance can 
not lawfully be granted to him under the superannuation acts, 1834 and 1859, and the 



Schedule 

1. 

30. s. 21. 
5. 5. 10. 
s. 39. 


A. 
III. 


15 & 16 Vict. 
15 & 16 Vict. 
17 & 18 Vict. 
19 & 20 Vict. 


c. 
c. 
c. 
c. 


73. s. 15 
87. s. 46, 
78. s. 22, 
110. s. 9, 


Appendix 





CIVIL-SERVICE EETIEEMBNT IN GREAT BRITAIN. 199 

treasury think that the special circumstances of the case justify the grant to him of a 
retiring allowance, they may grant to him such retiring allowance as they think just 
and proper, but in no case exceeding the amount for which his length of service would 
qualify him under sections two and four of the superannuation act, 1859, without any 
addition under section seven of that act. 

(2) A minute of the treasury granting an allowance under this section to any civil 
servant shall set forth the amount of the allowance granted to him, and the reasons 
for such allowance, and shall be laid before Parliament: Provided, That the treasury 
before making the grant shall consider any representation which the civil servant 
removed may have submitted to them. 

3. Where a person at the time he becomes a civil servant within the meaning of this 
act is serving the state in a temporary capacity, the treasury may, if in their opinion 
any special circumstances of the case warrant such a course, direct that his service in 
that capacity may be reckoned for the purposes of the superannuation acts, 1834 and 
1859, and this act, as service in the capacity of a civil servant, and it shall be so reck- 
oned accordingly. 

4. If a person employed in any public department in a capacity in respect of which 
a superannuation allowance can not be granted under the superannuation act, 1859, 
retires, or is removed from his employment, and 

(a) the employment is one to which he was required to devote his whole time, and 
(6) the remuneration for the employment was paid entirely out of moneys provided 
by Parliament, and 

(c) he has served in the employment for not less than seven years, if he is removed 
in consequence of the abolition of his employment, or for the purpose of facilitating 
improvements in the organisation of the department by which economy can be 
effected, or for not less than fifteen years if his retirement is caused from infirmity of 
mind or body, permanently incapacitating him from the duties of his employment, 
the treasury may, if they think fit, grant to him a compassionate gratuity not exceed- 
ing one pound or one week's pay, whichever is the greater, for each year of his service 
in his employment. 

5. A person shall not be entitled to reckon the same period of time both for the pur- 
pose of a superannuation allowance under the superannuation acts, 1834 and 1859, and 
this act, and also for the purpose of naval or military noneffective pay. 

6. (1) The treasury may, within one month after the passing of this act, frame rules 
as to the conditions on which any civil employment of profit under any public depart- 
ment as defined by this act, or any employment of profit under the government of any 
British possession, or any employment under the government of any foreign state may 
be accepted or held by any persons who is in receipt of or has received any sum granted 
by Parliament for the pay, half-pay, or retired pay of officers of Her Majesty's naval 
or land forces, or otherwise for payment for past service in either of such forces, or who 
has commuted the right to receive the same, and as to the effect of such acceptance or 
holding on the said pay or sum, and the treasury may in such rules provide for the 
enforcement thereof by the forfeiture, suspension, or reduction of any such pay or 
sum as aforesaid, or of any commutation money or remuneration for such employment. 

(2) Such rules shall also provide for the returns to be laid before Parliament of such 
officers accepting employment as are affected by the rules, and shall come into opera- 
tion at the date of the passing of this act. 

(3) The rules shall be laid before both houses of Parliament forthwith. 

(4) For the purposes of this section "British possession" means any part of Her 
Majesty's dominions out of the United Kingdom, and this section shall apply to Cyprus 
as if it were a British possession. 

7. (1) Where any sum in respect of pay, pension, superannuation, or other allow- 
ance or annuity is due in respect either of service as a civil servant, or of military or 
naval service, to a person who is a lunatic, whether so found by inquisition or not, 
such sum may be from time to time applied for his benefit by the prescribed public 
department in such manner as the department think expedient. 

(2) Where any annuity, whether pension, superannuation, or other allowance, is 
payable out of moneys provided by Parliament to a person in respect either of service 
as a civil servant or of military or naval service, and such person is or becomes a 
lunatic toward whose maintenance a contribution is made out of money provided 
by Parliament, then as long as the contribution is made his annuity shall be reduced 
by an amount equal to that contribution, and if the amount of the contribution exceeds 
the amount of the annuity, the annuity shall cease to be payable. 

8. On the death of a person to whom any sum not exceeding one hundred pounds is 
due from a public department in respect of any civil pay, superannuation, or other 
allowance, annuity or gratuity, then, if the prescribed public department so direct, 
but subject to the regulations (if any) made by the treasury, probate or other proof 



200 



CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 



of the title of the personal representative of the deceased person may be dispensed 
with, and the said sum may be paid or distributed to or among the persons appearing 
to the public department to be beneficially entitled to the personal _ estate of the 
deceased person, or to or among any one or more of those persons, or in case of the 
illegitimacy of the deceased person or his children, to or among such persons as the 
department may think fit, and the departnient shall be discharged from all liability 
in respect of any such payment or distribution. 

9. The decision of the treasury on any question which arises as to the application 
of any section of this act to any person, or as to the amount of any allowance or gratuity 
under this act, or as to the reckoning of any service for such allowance or gratuity, 
shall be final. 

10. Nothing in this act shall be construed so as in any way to interfere with the 
rights existing at the passing of this act of any civil servant then holding ofiice. 

11. Every warrant and minute under this act which is required to be laid before 
Parliament shall be laid before both houses of Parliament in manner provided by 
section thirteen of the superannuation act, 1859. 

12. In this act, unless the context otherwise requires — ■ 

The expression "civil servant" means a person who has served in an established 
capacity in the permanent civil service of the state within the meaning of section 
seventeen of the superannuation act, 1859; 

The expression "treasury" means the commissioners of Her Majesty's treasury; 

The expression "public department" means the treasiu-y, the commissioners for 
executing the office of Lord High Admiral, and any of Her Majesty's principal secre- 
taries of state, and any other public department of the government; and the expression 
"prescribed public department" means, as respects any matter, the department pre- 
scribed for the purpose of that matter by the treasury. 

13. The act of the session of the fourth and fifth years of the reign of King William 
the Fourth, chapter twenty-four, intituled "An act to alter, amend, and consolidate 
the laws for regulating the pensions, compensations, and allowances to be made to 
persons in respect of their having held civil offices in His Majesty's service," is in 
this act referred to and may be cited as the superannuation act, 1834, and that act 
and the superannuation act, 1859, are together in this act referred to as the super- 
annuation acts, 1834 and 1859. 

The said acts and this act may be cited together as the superannuation acts, 1834 
to 1887, and this act may be cited separately as the superannuation act, 1887. 

14. The acts set forth in the schedule to this act are hereby repealed to the extent 
in the third column of that schedule mentioned as from the passing of this act, without 
prejudice to anything previously done or suffered in pursuance of the enactments 
hereby repealed. 

Schedule. 

ACTS REPEALED. 



Session and chapter. 



Title or short title. 



Extent of repeal. 



4&5Will.4c.24... 



6& 7 Will. 4c. 13... 

7 Will. 4 & 1 Vict. 
c. 25. 

2&3 Vict. c. 47.... 

2&3 Vict. c. 93.... 



22 Vict. c. 26 

22 & 23 Vict. c. 32. 



An act to alter, amend, and consolidate 
the laws for regulating pensions, com- 
pensations, and allowances to be 
made to persons in respect of their 
having held civil offices in His Maj- 
esty's service. 

An act to consolidate the laws relating 
to the constabulary force in Ireland. 

An act to make more effectual provi- 
sions relating to the police in the dis- 
trict of Dublin metropolis. 

An act for further improving the police 
in and near the metropolis. 

An act for the establishment of county 
and district constables by the author- 
ity of justices of the peace. 

The superannuation act, 1859 

An act to amend the law concerning 
the police in counties and boroughs 
in England and Wales. 



Section sixteen. 



Section thirty. 
Section nineteen. 

Section nineteen. 
Section eleven. 



Section five. 
Section twenty- 
seven. 



CIVIL-SEKVICE RETIKEMENT IN GREAT BRITAIN. 



^01 



Schedule — Continued. 
ACTS REPEALED— Continued. 



Session and chapter. 


Title or sliort title. 


Extent of repeal. 


31 & 32 Vict. c. 90... 


An act to empower certain public de- 
partments to pay otherwise than to 
executors or administrators small 
sums due on account of pay or allow- 
ances to persons deceased. 


The whole act. 


33&34Vict. c. 96... 


An act to apply a sum out of the con- 


Subsections four. 




solidated fund to the service .of the 


five, and six of 




year ending the thirty-first day of 


section six. 




March one thousand eight hundred 






and seventy-one, and to appropriate 






the supplies granted in this session of 






Parliament. 




35 & 36 Vict. c. 12... 


The superannuation act, 1872 


The whole act. 









Appendix IV. 

WARRANT REGULATING THE GRANT OF GRATUITIES AND ALLOW- 
ANCES UNDER SECTION 1 OF THE SUPERANNUATION ACT, 1887. 

In conformity with the provisions of the 1st section of the superannuation act, 1887, 
we, being two of the lords commissioners of Her Majesty's treasury, do hereby direct 
that any award of a gratuity or annual allowance made under the said section shall be 
subject to the following conditions, viz: 

The award shall be calculated upon one or other of the following scales, which shall 
respectively apply to — 

I. Established officers of prisons or criminal lunatic asylums injured by the violence 
of a prisoner or lunatic; or established officers of a manufacturing department of the 
war office or Admiralty, in which the duties are exceptionally dangerous. 

II. All civil servants not falling under the above description, and also all hired 
person employed in a manufacturing department of the war office or Admiralty in 
which the duties are exceptionally dangerous. 

III. All other hired persons employed in a public department. 

Scales I and II. 

To the retired allowance for which the injured man would be qualified by length of 
service, shall be added an allowance not exceeding the under-mentioned portion of 
his salary and emoluments at the date of the injury, viz: 

When his capacity to contribute to his support is — 





Scale I. 


Scale II. 


Sliffhtlv imDaired 


Six-sixtieths 


Five-sixtieths. 


Impaired 


Twelve-sixtieths 

Eighteen-sixtieths 

Twenty-four-sixtieths . . 


Ten-sixtieths. 


Materially impaired 


Fifteen-sixtieths. 


Totally destroyed 


Twenty-sixtieths. 



Provided that no award on Scale I shall, together -with any retired allowance for 
which the injured man would be qualified by length of service, exceed the amount 
of his salary and emoluments at the date of the injury, or £300 a year, whichever is 
less; and that no award on Scale II shall, together vfith any retired allowance for which 
he would be qualified by length of service, exceed fifty-sixtieths of his salary and emolu- 
ments at the date of the injury, or £300 a year, whichever is less. 



202 CIVIL-SEKVICE KETIKEMEHT m GREAT BRITAIN. 

Scale III. 

(a) A gratuity not exceeding tlie under-mentioned portion of the salary and emolu- 
ments of the injured man at the date of the injury, or £100, whichever is less, viz: 

When his capacity to contribute to his support is — 
Slightly impaired, one- third. 
Impaired, two-thirds. 
Materially impaired, the whole. 

(6) When his capacity to contribute to his support is totally destroyed , he shall receive 
an annual allowance exceediing by fifteen-sixtieths of his salary and emoluments the 
rate of retired allowance for which he would have been qualified by length of service 
if he had been a civil servant, provided that the total award shall not exceed forty-five- 
sixtieths of his salary and emoluments at the date of the injury, or £300 a year, which- 
ever is less. 

An award under any of the* above scales shall be so much less than the usual amount 
as the treasury shall think reasonable, in case — 

(a) The usual amount exceeds by not less than £100 a year the rate of retired allow- 
ance for which the length of the injured man's service would entitle him; or 

(6) The injured man has continued to serve for not less than one year after the 
injury in respect of which he retires; or 

(c) The injured man is 55 years of age or upwards at the date of the injury; or 

(d) The injury is not the sole cause of retirement, i. e., the retirement is caused 
partly by age or infirmity. 

WIDOWS AND CHILDREN OP MEN KILLED WHILE IN THE DISCHARGE OP DUTY. 

An award shall be on one or other of the following scales, according as the deceased 
had been — 

I. An established officer of a prison or of a criminal lunatic asylum killed by a 
prisoner or lunatic; or an established officer of a manufacturing department of the war 
office or Admiralty, of which the duties are exceptionally dangerous. 

II. A civil servant not falling under the above description, or a hired Derson em- 
ployed in a manufacturing department as above. 

III. Any other hired person employed in a public department. 

Scale I. 

Pension to widow, while unmarried and of good character, not exceeding ten- 
sixtieths of the husband's salary and emoluments at the date of the injury, or £15 a 
year, whichever is greater; and 

Pension to each child until he or she attains the age of 15, not exceeding one-sixth of 
the rate which might be granted to the widow, but the aggregate of the children's 
pensions not to exceed the amount which might be granted to the widow. 

Scale II. 

Pension to widow not to exceed ten-sixtieths of the husband's salary and emolu- 
ments, or £10 a year, whichever is greater; and 

Gratuity to children, not exceeding £1 multiplied by the total number of their 
years, starting from their ages at the time of their father's death, and ending with 15 
years; the total gratuity not to be less than £10 or more than £50. 

Scale III. 

Pension to the widow not exceeding eight-sixtieths of the husband's salary and 
emoluments, or £10, whichever is greater. 

Gratuity to children not exceeding 16 shillings multiplied by the total number of 
their years, starting from their ages at the date of their father's death and ending with 
15 years; the total gratuity not to be less than £8 or more than £40. 

In the case of motherless children the award under any scale may be of twice the 
usual rate. 

If the service of the deceased at the date of the injury was less than five years the 
award under any scale shall be — 

To the widow a gratuity not exceeding one-half of the salary and emoluments of 
the deceased. 

To each child a gratuity not exceeding one-twelfth of the salary and emoluments 
of the deceased; but the total gratuity to widow and children shall not exceed one 
year's salary and emoluments of the deceased. 



CIVIL-SERVICE EETlEEMEiSTT IN GREAT BRITAIN. 203 

MOTHERS or MEN KILLED IN THE DISCHARGE OF DUTY. 

If the deceased does not leave a widow, and if his mother was wholly dependent 
upon him for her support, the award which might have been made to a widow may be 
made to the mother. 

(Signed) Herbert Eustace Maxwell. 

W. H. Walrond. 
Treasury Chambers, September, 1887. 



Appendix V. 

SCHEME OF COMPENSATION (NO. 116) IN CASE OF INJURY TO WORK- 
MEN IN GOVERNMENT ESTABLISHMENTS. 

[D. 780— Established May, 1903; revised December, 1907.] 

Certified by the chief registrar of friendly societies, under date of 16th December, 
1907, as providing scales of compensation not less favourable to the workmen and 
their dependants than the corresponding scales in the workmen's compensation act, 
1906. The new or altered provisions are italicized. 

A. Death from injury. 

1. When it is established to the satisfaction of the treasury that the death of a 
workman has resulted from an injury to which the provisions of the workmen's com- 
pensation act, 1906, apply, and that the workman has left any dependants wholly or 
partially dependent upon his earnings at the time of his death, a sum equal to the 
earnings of the deceased in the employment of the Government during the three years 
next preceding the injury, or the sum of £150, whichever is the larger, but not exceed- 
ing in any case £300, shall be payable in the case of dependants wholly dependent, 
and half the same sum in the case of dependants partially dependent (where there 
are no dependants wholly dependent) ; provided that the amount of any weekly pay- 
ments made under this scheme in respect of the injury causing the death of the work- 
man and any lump sum paid in commutation thereof shall be deducted from the sum 
payable. 

If the period of the workman's employment by the Government has been less than 
the said three years, the amount of the earnings of the deceased during the said three 
years shall be deemed to be 156 times his average weekly earnings during the period 
of his actual employment by the Government. 

The sum awarded will be paid to the dependants or to a trustee or trustees on their 
behalf as the case may be. 

2. The treasury may, in any case in which the authorities of a department consider 
that the interests of a workman's dependants would be better served by a pension to 
the widow or mother (where there is no widow) than by a lump sum, deal with the 
case as follows, namely: 

There shall be deducted from the lump sum payable to the dependants under the 
scheme a portion for the dependent child or children, if any. Such portion shall not 
exceed one-half of the entire amount if there is only one child, or two-thirds if there 
are more than one, and there shall be granted to the widow or mother (where there 
is no widow) a pension equal to the annuity which the remainder of the aforesaid 
lump sum would purchase according to the post-ofSce tables for the purchase of imme- 
diate annuities. Such pension shall not be liable to forfeiture in the event of the 
re-marriage of the recipient. 

3. If the authorities of the department consider it desirable in the interests of a 
workman's dependants that a trustee or trustees should be appointed to administer 
for their benefit the money awarded as compensation to them, they may appoint a 
trustee or trustees, and pay the said money to him or them to be administered for the 
benefit of the dependants accordingly. 

4. On the death of a workman leaving no dependants a payment of not more than 
£10 shall be made, to cover the reasonable expenses of his medical attendance and burial, 
as under the workmen's compensation act. 



204 CIVIL-SERVICE retirement: in great BRITAIN. 

B. Incapacity from injury. 

5. When incapacity for work results from the injury, the injured workman shall 
receive for the period, not exceeding six months, during which he is on the hurt list 
on account of the injury, half his average weekly earnings during the previous 12 
months, if he has been so long employed, and if not, half his average weekly earnings 
for any less period during which he has been in the employment of the Government. 

Should, hoivever, the average weekly earnings of a workman, who is under 21 years of 
age at the date of the injury, he less than 20 shillings, such earnings shall he paid in full, 
hut the weekly payments shall in no case exceed 10 shillings. 

6. Should the rate of pay of his class be increased while he is on the hurt list he 
shall participate in the increase. 

7. In addition he shall receive free treatment in hospital, when the use of a hospital 
is available to his department for the purpose. When it is not so available, he shall 
receive free medical attendance. 

8. Any workmen now serving who are entitled under the regulations of their depart- 
ment to more favourable treatment while on the hurt list than is provided for above 
shall continue to be so entitled. 

9. When total or partial incapacity for work continues beyond the period for which 
the workman receives hurt pay, as provided by clause 5, an allowance shall be paid 
to him at the following rates, during the continuance of the incapacity, viz: "V^Tien 
his capacity to contribute towards his own support has been shown to the satisfaction 
of the treasury to have been — 

(1) Totally destroyed, then twenty-four sixtieths; 

(2) Materially impaired, eighteen sixtieths; 

(3) Impaired, twelve sixtieths; 

(4) Slightly impaired, six sixtieths; 

of his average weekly earnings during the previous 12 months, if he has been so long 
employed; but if not then during any less period for which he has been in the employ- 
ment of the Government. Provided that in any case where it appears on sufficient evi- 
deyice that a douht exists as to the incapacity of the workman under this clause the treasury 
may obtain the opinion of a second medical practitioner. 

In the case of a workman who was under 21 years of age at the date of the injury, and 
whose average weekly earnings were less than 20 shillings, douhle the above rates of com- 
pensation shall be atvarded, provided that the weekly payment shall in no case exceed 70 
shillings. 

10. If the workman continues in or returns to the employment of the Government 
after the injury, the allowance awarded to him by way of compensation shall be paid 
to him in addition to his earnings in the employment of the Government so long as 
the degree of incapacity continues on account of which it was awarded, provided that 
the said allowance, when added to his weekly earnings shall not exceed his average 
weekly earnings during the 12 months preceding the injury, or during any shorter 
period for which he has been in the employment of the Government, as the case may 
be. Until such limit is reached no deduction shall be made from the said allowance. 

In the case of a ivorkman who was under 21 years of age at the date of the injury, and 
whose average iveekly earnings were less than 20 shillings, the alloivance awarded by way 
of compensation, ivhen added to his weekly earnings, may be alloived to exceed the average 
weekly earnings before the injury, as above determined, by such an amount as the treasury 
may think that the circumstances justify. 

Periodical adjustments of the award in accordance with these provisions may be 
made at such intervals as may be sanctioned by the treasury. 

11. If, after the injury, the workman leaves the employment of the Government, 
the allowance shall be in addition to the pension, if any, for which he is qualified by 
length of service, provided that the compensation for injury and the pension in respect 
of length of service shall not together exceed his pay at the date of the injmy, or £300 
a year, whichever is the less. 

12. A permanent allowance awarded by way of compensation may be commuted 
for a single payment, the amount of which shall be settled between the workman and 
the authorities of the department, with the sanction of the treasury. 

13. A claim for compensation for an injury which occurred more than three years 
before the claim is preferred, and which is not the cause of the applicant's discharge 
from the service, can not be entertained unless it can be clearly shown that the pros- 
pect of obtaining fxuther employment has been diminished in consequence of the 
injury. 

14. Any ivorkman who wishes to tvithdraiu from the scheme may do so at any time. Notice 
of vnthdrawal must be given by him in tvriting, on a form loJiich ivill be supplied for the 
purpose on application, and the withdrawal will take effect as regards any accident happen- 
ing after the receipt of the notice by the duly authorised officer. 



CIVIL-SEKVICE RETIEEMENT HsT GREAT BEITAIlSr. 205 

15. Workmen who do not contract that the provisions of the scheme shall be sub- 
stituted for the provisions of the act, or who at any time withdraw from the scheme, must 
thenceforward be dealt with, in cases of injury, solely in the manner provided by the 
act; and any benefits, in cases of injury, which such workmen now receive can no 
longer be accorded. 



Appendix VI. 
AN ACT To amend the superannuation acts, 1834 to 1892 (20th September, 1909). 

Be it enacted by the King's Most Excellent Majesty, by and with the advice and consent 
of the- Lords , spiritual and temporal, and Commons, in this present Parliament assembled 
and by the authority of the same, as follows: 

I. (1) The proportion of the annual salary and emoluments on which the scale of 
the superannuation allowances to be granted to male civil servants is to be calculated 
shall, in the case of civil servants who enter the service after the passing of this act, 
be one-eightieth instead of one-sixtieth, and accordingly section two of the superan- 
nuation act, 1859, shall, as respects such civil servants, have effect as if for the words 
"sixtieth" and "sixtieths," wherever they occur, there were substituted the words 
"eightieth" and "eightieths." 

(2) The treasury may grant by way of additional allowance to any such civil servant 
who retires after having served for not less than two years, in addition to the superan- 
nuation allowance (if any) to which he may become entitled or the gratuity (if any) 
which may be granted to him under section six of the superannuation act, 1859, a 
lump sum equal to one-thirtieth of the annual salary and emoluments of his ofiice 
multiplied by the number of complete years he has served, so, however, that the 
additional allowance shall in no case exceed one and a half times the amount of such 
salary and emoluments : 

Provided, That if a civil servant retires from the service after attaining the age 
of sixty-five years, there shall be deducted from the amount of the additional allow- 
ance which would otherwise be payable to him one-twentieth of that amount for every 
complete year he has served after attaining that age. 

II. (1) "Where a male civil servant who enters the service after the passing of this 
act dies, after he has served five years or upwards, whilst still employed in the service, 
the treasury may grant to his legal personal representatives a gratuity equal to the 
annual salary and emoluments of his office: 

Provided, That if he dies after attaining the age of sixty-five years, the amount of 
the gratuity which may be so granted shall be reduced by one-twentieth of that amount 
for every complete year he has served after attaining that age. 

(2) Where any such civil servant having become entitled to a superannuation 
allowance dies after he has retired from the service, and the sums actually received by 
him at the time of his death on account of such superannuation allowance, together 
with the sum received by him by way of additional allowance, are less than the amount 
of the annual salary and emoluments of his office, the treasury may grant to his legal 
personal representatives a gratuity equal to the deficiency. 

III. (1) Subject to regulations made by the treasury, the treasury may allow any 
male civil servant who has entered the service before the date of the passing of this 
act, and who at that date is under sixty years of age, to adopt the provisions of this act, 
and in such case there may be granted to him or his legal personal representatives 
such superannuation and other allowances and gratuity as might have been granted 
had he entered the service after the passing of this act, except that the amount of the 
additional allowance payable on retirement shall be increased by one-half per cent in 
respect of each complete year he had served at the passing of this act. 

(2) Nothing in this act shall affect the right to superannuation allowance or gratuity 
of a civil servant who has entered the service before the passing of this act, and who 
either is at that time over sixty years of age, or is under sixty years of age and does not 
adopt the provisions of this act. 

IV. Subject to the provisions of this act the provisions of the superannuation acts, 
1834 to 1892, with respect to the qualifications for obtaining superannuation allowances 
and gratuities, and to the manner of reckoning years of service and amount of annual 
salary and emoluments, and to the diminution of superannuation allowances, and to 
the determination of questions by the treasury shall apply in respect of additional 
allowances and gratuities under this act in like manner as they apply in respect of 
superannuation allowances under those acts. 



206 CIVIL-SBEVICE RETIREMENT IN GREAT BRITAIN. 

V. A warrant framed by the treasury under section one of the superannuation act, 
1887, with respect to the grant of gratuities and allowances to civil servants injured 
in the discharge of their duty may be revoked or from time to time varied by a fresh 
warrant, and every such warrant shall be laid before Parliament. 

VI. (1) It shall be lawful for the treasury to grant to any person retiring or removed 
from the public service in consequence of the abolition of his office, or for the purpose 
of facilitating improvements in the organisation of the department to which he 
belonged, by which greater efficiency and economy can be effected, such special allow- 
ance or allowances by way of compensation as on a full consideration of the circum- 
stances of the case seem to the treasury to be a reasonable and just compensation for 
the loss of office, but not exceeding in any case the amount which a civil servant would 
be entitled to or which might be granted to a civil servant if he retired on the ground 
of ill health. 

(2) The foregoing provision shall apply only to persons entering the service after 
the date of the passing of this act, and shall apply to those persons in substitution for 
section seven of the superannuation act, 1859. 

Nothing herein contained shall affect the application of the said section seven of the 
superannuation act, 1859, to persons who have entered the service before that date 
or the practice of the treasury thereunder. 

VII. (1) The treasury may from time to time make rules for the purpose of carrying 
this act into effect and for making such adaptations and modifications of the provisions 
of the superannuation acts, 1834 to 1892, and other enactments relating to superannua- 
tion allowances and pensions of persons who have served partly in the civil service 
and partly in some other service entitling them to a pension as may be necessary for 
adapting those provisions to the provisions of this act, and for altering the rules made 
by the treasury under the superannuation act, 1892. 

(2) Before any rules made under this section come into force a draft thereof shall 
be laid before each House of Parliament for a period of not less than thirty days during 
the session of Parliament, and if either of those houses of Parliament, before the expi- 
ration of those thirty days, presents an address to His Majesty against the draft or any 
part thereof, no further proceedings shall be taken thereon, without prejudice to the 
making of any new draft rules. 

VIII. This act may be cited as the superannuation act, 1909, and shall be read aa 
one with the superannuation acts, 1834 to 1892, and those acts and this act may be cited 
together as the superannuation acts, 1834 to 1909. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 



207 



CONTENTS 



Civil-service retirement in New Zealand, by Herbert D. Brown: Page. 

Summary 211 

Pension system, 1858 to 1871 212 

Pension act of 1856 213 

Pension act of 1858 (the first general pension) 215 

Reorganization of civil service and pension act of 1866 215 

Abolition of civil pensions in 1871 215 

Com.pulsory savings scheme, 1886 to 1893 217 

Reasons for adoption of the scheme 217 

Need of a proper superannuation system recognized 220 

Civil-service insurance act, 1893 222 

Main features of the act 222 

Purpose of the act : 223 

Debate on the bill in Parliament 224 

Criticism of the act 226 

Public service superannuation act. 1907 228 

Superannuation bill first introduced, 1906 228 

Collection of statistics of civil service made by actuary 229 

Cost of proposed bill based on statistics collected 233 

Consideration of how cost might be met 234 

Recommendation of actuary of how cost should be met 238 

Amendments to the proposed bill recommended by actuary 239 

Advantages of a superannuation system cited by actuary 240 

Superannuation bill of 1907 introduced 240 

Actuary made only estimate of cost, instead of calculation 242 

Main features of the law enacted 244 

Operation of law, first six months 246 

Public attitude in regard to law 247 

Teachers', police, and government railways superannuation acts consoli- 
dated 249 

Comparison of benefits under various government schemes 250 

Report on the teachers' fund 251 

Report on the police fund 252 

Report on the government railways fund 253 

Conclusions 254 

Appendix : 

Public service superannuation act, 1907 257 

35885— S. Doc. 290, 61-2 14* 209 



CIVIL SERVICE RETIREMENT IN NEW ZEALAND. 

BY HERBEET D. BROWN. ^ 

SUMMARY. 

The Government of New Zealand has proceeded with great delib- 
eration and conservatism in working out the problem of retiring its 
civil employees. It has profited to a marked degree by the experience 
of others, and has sought to avoid mistakes that have wrecked the 
schemes of other countries. 

A system of granting straight pensions and gratuities out of the 
Treasury was begun in 1858 and continued until 1871, when it was 
abolished, chiefly on the ground of expense. 

Then for thirteen years the Government did nothing for its aged 
employees except pay "compensation" (they called it "compensa- 
sation for loss of office") to the extent of one month's salary for 
every year that an employee had been in the service. 

In 1886, with a view to the reduction of public expenditures, an 
act was passed which required all civil employees to save 5 per cent 
of their salaries. This amount was deducted from their salaries and 
handed over to the public trustee, an official of the New Zealand Govern- 
ment, whose functions and office may be called peculiar to that colony, 
who invested it and returned it with interest to the employee, when 
the latter left the public service. 

This savings arrangement proving inadequate as a superannuation 
measure in the case of employees who lived a long time after retire- 
ment, it was abolished in 1893, and New Zealand adopted for civil 
employees a system of compulsory insurance through the Government 
Life Insurance Office. The premiums were deducted from salaries, 
according to a sliding scale. The employees insured themselves for 
each of two alternative benefits — for a death benefit in case of death 
before reaching the age of 60 years, or for an annuity if living at that 
age. 

Compulsory insurance, owing to the heavy premiums necessary 
to provide both benefits, proved as unsatisfactory a provision for 
retirement as compulsory savings had been. All classes of govern- 
ment employees were discontented, but after 1893 no retirement leg- 
islation affecting employees of the "Public Service" proper was passed 
until 1907. Measures affecting special classes of government employ- 
ees such as the police force, the railway officers, and teachers were 

«Mr. Brown desires to give credit to Harriet Connor Brown for valuable assistance 
in the collection of historical data. 

211 



212 CIVIL-SEEVICE EETIREMENT IF NEW ZEALAND. 

passed, however, in the intervening years. The superannuation laws 
enacted were as follows: 

In 1899, the Police Provident Fund Act, subsequently consolidated 
into "The Police Force Act, 1908." In 1902, the Government Rail- 
ways Superannuation Fund Act, subsequently consolidated into 
"The Government Railways Act, 1908." In 1905 the Teachers' 
Superannuation Fund Act subsequently consolidated into "The 
Public Service Classification and Superannuation Am^endment Act, 
1908." In 1907 the Public Service Superannuation Act subsequently 
consolidated into "The Public Service Classification and Superan- 
nuation Act, 1908.' 

It is reported (by the American consul-general at Auckland, New 
Zealand) that these separate schemes will no doubt soon be amal- 
gamated in one uniform system. They are all established on a 
contributory basis, the employees paying into the fund a percentage 
of salary which varies according to age at entrance into the service, 
and the Government paying £20,000 ($97,330) yearly to the public- 
service fund, besides whatever more may be necessary, £7,000 
($34,066) to the teachers' fund, and guaranteeing to make up any 
deficiency in all other schemes. The pensions granted are based on 
length of service and average salary during the last three years. 
Payment of pensions on services rendered prior to the adoption of 
this plan is made entirely by the State. The State contributes some- 
thing also to the pensions of those whose service begins after the 
adoption of the plan, since the benefits promised under the plan are 
more generous than could be provided by any feasible deduction 
from salary. {"') 

THE PENSION SYSTEM, 1858 TO 1871. 

The changes made by New Zealand from time to time in its method 
of providing for superannuated employees reflect the material and 
economic progress of the colony. 

The history of New Zealand as a British colony dates from the 
year 1840. From 1840 to 1853 New Zealand was governed as a 
Crown colony, all the real authority of government resting with 
officials in the Colonial Office in England. A governor, an executive 
council, and a legislative council held office in New Zealand, but 
all were appointed directly by the Crown. In 1852 the imperial 
Parliament passed an act which conferred on the colony a constitu- 
tion. Popular elections were held in 1853 and the first colonial par- 
liament met on May 24, 1854. Those who had drawn up the consti- 
tution had failed to provide for what is called "responsible govern- 
ment," by which is meant a government in which "Ministers, the 
responsible officers of the Crown, assume and resign office practically 

o See page 254. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 213 

at the will of a majority of the representatives of the people." The 
constitution of 1852 contained no provision for bringing the ministry 
to an end by vote of the House, and the Colonial Office in England 
had sent no directions on this point. All the newly elected members 
of the House of Representatives could do, therefore, was to make 
speeches, the real power being still vested in the old executive council. 
The acting governor was influenced by members of that same execu- 
tive council, who were not disposed to give up their authority and 
privileges. The House presented an address to him, urging him to 
take measures to establish responsible government, but he replied 
that the act conferring the constitution contained nothing to sanction 
such a course and that he was unable to do anything without the 
permission of England. He agreed, however, to add three members 
of the House to the executive council, the three patent members of 
that body expressing themselves as willing to retire, on condition 
that suitable pensions were provided them. Three members of the 
House were accordingly sworn in as members of the executive council 
and therefore as responsible advisers to the governor, but after a few 
weeks' trial resigned. They assigned as reason for their resignation 
the fact that the acting governor had not called upon the patent 
members of the executive council to re&ign. He, in his turn, defended 
his action by saying that no pensions bill had been passed and it was 
impossible for him to turn his old advisers adrift. A conflict ensued 
between the administration and the assembly which resulted in a 
victory for the assembly. A bill was passed for the establishment of 
a ministry responsible to the House, and it was approved by the 
Home Government in a dispatch written by the secretary of state on 
December 8, 1854, but on condition, as will be seen from the following, 
that the retiring officials be pensioned at the expense of the colony : 

I have taken the earliest opportunity of informing you that Her 
Majesty's Government have no objection whatever to offer to the 
establishment of the system known as "responsible government" in 
New Zealand. They have no reason to doubt that it will prove the 
best adapted for developing the interests as well as satisfying the 
wishes of the community. Nor have they any desire to propose 
terms or to lay down restrictions on your assent to the measures which 
may be necessary for that object, except that of which the necessity 
appears to be fully recognized by the General Assembly— namely, the 
making provision for certain officers who have accepted their offices 
on the equitable understanding of their permanence, and who now 
may be liable to removal. (") 

Pension Act of 1856. 

At the first session of the second Parliament, which met on April 
15, 1856, the first business taken up in both the House and legislative 
council was, accordingly, the formation of a responsible ministry. 

o New Zealand Parliamentary Debates, Second Parliament, 1856-1858, p. 13. 



214 CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 

It was stated in Parliament that the great boon of responsible govern- 
ment could be secured only at some expense to the colony; that is, 
by payment of pensions to existing holders of office in order to allow 
of the new executive taking the practical administration of affairs. 
It was explained that the governor, in imposing that condition, was 
the mere agent of imperial authority and acting according to in- 
structions from which he could not depart. (") 

The first business before Parliament, therefore, was consideration 
of the proposed pensions bill, a measure which provided for buying 
off the old officials who had been appointed to their positions by the 
ruling powers in England. These were only three in number, the 
colonial secretary, the colonial treasurer, and the attorney-general, 
but pensions were not granted to them without debate, as it was con- 
tended by certain members of the House that these officials had not 
administered their offices so as to conduce to the welfare of the colony 
but the contrary, and that "retiring officers should be treated ac- 
cording to their deserts." Doctor Featherston, member from the 
city of Wellington, declared: 

If, too, these pensions were granted, where was the House to stop ? 
Ought not every individual who had been or was liable to be dis- 
missed to be provided for in the same way? If these officials had 
any claim it was against the Colonial Office, whose servants and 
tools they had been; and, if there was one doctrine against which 
more than another the House was called upon to protest it was that of 
vested interests. If not guarded against, it would creep in at every 
point, till it imposed a burden that would be absolutely ruinous. C") 

In reply to this Mr. Sewell said that. 

His honorable friend, the member for Wellington city, had exag- 
gerated the question before them by treating it as if it were, or as if 
it comprehended, some important general principle whether pensions 
should be granted to all officials on their having to retire on the 
introduction of responsible government. In voting for these pen- 
sions he should not vote for any such principle, and he had never 
placed it before the House in that light. Instead of placing the 
question on stilts in this way — instead of making it a grand question 
of constitutional principle— he had brought that subject before the 
House as a motion of practical business, on the ground that liis 
excellency was under the impression — it might be an erroneous one — 
that he was bound, as the i^epresentative of the Home Government, 
to protect the interests of the gentlemen holding these offices, and 
to insist that, before removing them to make way for responsible 
officers, some provision should be made for them.C") 

After considerable debate the bill pensioning the three officials was 
passed, although nearly all who took part in the discussion dis- 
claimed the notion that ' ' because a man had for many years received 
a large amount of pubHc money, therefore he should receive a pen- 

"New Zealand Parliamentary Debates, Second Parliament, 1856-1858, p. 13. 
6 Idem, p. 25. 



CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 215 

sion on retiring or being displaced," and agreed to the measure 
merely as a means to an end. 

Pension Act of 1858 (the First General Pension Law). 

Despite Mr. Se well's assertion that the general principle of grant- 
ing pensions to retiring officials was in no way involved in the passage 
of the Pension Bill of 1856, we find that only two years later a gen- 
eral pension system for the benefit of "any one in the civil service 
except extra clerks" was inaugurated. The Act of 1858 provided 
for retirement on annuity "in case of incapacity by age, ill-health, or 
other infirmity after ten years of faithful and diligent service. If 
the term of service had been ten to seventeen years, the annual 
allowance was one-fourth of the employee's average salary for the 
last three years. From seventeen to forty-five years the pension was 
one-third of such salary plus one-eighty-fourth of such salary for each 
year of service above seventeen. For forty-five years or more of 
service the allowance was two-thirds of the said salary. In the dis- 
cretion of the governor in council, relief up to one year's salary 
could be granted the widow or family of one dying in the employ of 
the general Government." 

Reorganization of Civil Service and Pension Act of 1866. 

Under the terms of a civil service act passed in 1866, changes were 
made in the provisions for grant of pensions to civil employees. 
This act was designed to provide for the organization, classification, 
and regulation of the civil service. Government employees were 
divided into five classes, appointments being made to the lowest 
class on probation. Examinations were provided, but they were not 
competitive. Promotion was made to depend on seniority in office, 
so far as that principle could be followed without detriment to the 
service, but the governor was authorized to appoint any one to a 
vacancy if he stated his reasons to the general assembly. Dismissal 
depended on the will of the executive. The allowance on retirement 
granted under this bill reflects the influence of the British Superan- 
nuation Act of 1859. It was fixed at one-sixtieth of the average 
salary (of the three preceding years) for each year of service, eleven- 
sixtieths for eleven years' service, twelve-sixtieths after twelve years' 
service, etc., up to forty-sixtieths, or two-tliirds pay, after forty years 
or more of service. 

Abolition of Civil Pensions in 1871. 

Those sections of the Civil Service Act of 1866 which provided for 
pensions were repealed in 1871 as applied to persons coming into the 
the service after that date; in other words, the pension system as a 
system was abolished, though pensions continued to be paid to those 
whom the colony had contracted to pension under the acts of 1858 



216 CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 

or 1866. The report of the actuary on the prospective superannua- 
tion bill in November, 1907, shows that there were still 132 retired 
civil employees on the pension fund at that late day, and 86 pros- 
pective ones. C'*) The pensions paid in 1906 amounted to over £25,988 
($126,471), the gratuities to £8,377 ($40,767), the compensations to 
£7,792 ($37,920). (^) 

The system was abandoned in 1871 because Parliament saw that 
the amount paid in pensions, though extremely small, was rapidly 
increasing proportionately. In eleven years it went up from about 
£160 ($779) to about £7,400 ($36,012), and there was fear that it 
might double itself in a very few years. C^) This opposition to the pen- 
sion system because of its growing expense had undoubtedly unusual co- 
gency in the year 1871, a memorable year in the annals of New Zealand. 
There was no money in the treasury for expenditure on future devel- 
opment, much less on pensions for past services. The total European 
population of the colony was then only 266,986 in number and the 
total value of exports only a little over £5,000,000 ($24,332,500), 
more than half of which was gold. The colony was staggering under 
the effects of a fierce and devastating war with native tribes. One 
historian of New Zealand writes: "The characteristic feature in 1871 
of colonization in New Zealand, as a whole, was stagnation. Industry 
languished; capital was withheld; property was depressed; employ- 
ment, except in the gold fields and in their vicinity, was difficult to 
be obtained; and the scanty population attached to the soil was 
altogether inadequate to the development of the resources of the 
country." It is not surprising that the legislature should have 
regarded with disfavor a system of retiring public officials that 
promised to make increasing claims on a treasury already bare. 

Another objection urged against the pension system was the fact 
that it made retrenchment in government work very difficult, a con- 
sideration that reflects a very interesting phase in the development 
of New Zealand. The decade of 1870-1880 is especially noteworthy 
in the history of the islands because of the development during that 
period of the public works policy, which resulted in the unification 
of the colony and the doubling of the population. The public debt 
amounted at that time to about £7,000,000 ($34,065,500) and a large 
part of it had been spent in public works, but it had been raised on 
the credit of the provincial legislatures only. This experience had 
been sufiicient to teach legislators that flexibility in the civil service 
was very advantageous when the Government was carrying on a 
vigorous system of public works. Frequently the exigencies of the 
task required that the service be temporarily increased or decreased. 

« Report on Public Service Superannuation Bill, 1906. Minutes of evidence, p. 6. 
*^ Idem, Appendix, p. 24. 

c Second Report of Royal Commission on Superannuation in the Civil Service, 1903. 
Minutes of evidence, p. 116. 



CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 217 

Any system which seemed to interfere, either legally or morally, with 
a rather rapid reduction in the number of civil employees, when 
necessary, was unpopular with members of the legislature. It was 
natural, therefore, when entering on an enlarged policy of public 
works that they should be inclined to express their disapproval of a 
system which might hamper the effective execution of that policy. 

It was contended also by some members that it was the business of 
the Government to pay adequate salaries, but not to support its em- 
ployees in old age. This theory of independent contractual relations 
prevailing in debate, the pension system was abandoned, saving the 
rights of existing employees. Lump sums were to be bestowed on 
retirement either as gratuities in recognition of long service or com- 
pensation for loss of office, but no more yearl}^ pensions were prom- 
ised to those entering the service. 

COMPULSORY SAVINGS SCHEME, 1886 TO 1893. 
Reasons for Adoption of the Scheme. 

Great industrial changes took place in New.Zealand between 1871, 
the date of the abolition of the civil pension system, and 1886, the 
year of the next legislation affecting civil employees. At the close of 
the decade of road, railway, and bridge making, New Zealand found 
itself with a great public debt, four thousand miles of telegraphs, 
eleven hundred miles of railways, and innumerable new roads and 
bridges. A period of profound business depression followed, in which 
the government service suffered with the rest of the colony. Even 
the gratuities and compensations granted civil employees were felt to 
be too great a charge for the overburdened public to bear. When, 
therefore, the civil-setvice reform bill was drawn up in 1886, a clause 
was inserted providing that civil employees should be required to set 
aside 5 per cent of their salaries, which should be returned to them 
with interest on their retirement from office. The compulsory sav- 
ings scheme was purely a move in. the interests of the taxpayer. It 
was to be supposed, of course, that the employee who received his 
savings in a lump sum, on leaving the service, would be less disposed 
to ask for a gratuity or compensation than the one who found himself 
entirely without funds on retirement from office. 

This reform bill was intended to supersede the Civil Service Act of 
1866, which was supposed to give the Government control of the civil 
service, but which had remained a dead letter on the statute books. 
The reform measure made explicit provision for the appointment, 
classification, dismissal, and retirement of civil employees. The 
clause providing for compulsory savings read as follows : 

Out of the salary of every civil servant hereafter appointed there 
shall be deducted the sum of five per centum per annum, which said 
sum shall be paid into a separate fund to the public trustee, to be 



218 CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 

invested at interest on such security as the PubHc Trust Office shall 
approve. It may invest the same along with other sum or sums, but 
a separate account shall be kept for the amount paid to the credit 
of each such officer. (") 

It should perhaps be explained that the public trustee in New 
Zealand is an officer who administers all trusts placed in his hands 
under the PubUc Trust Act of 1872. The functions of the public 
trustee are very extensive, and include the care of estates of intes- 
tates, of lunatics, and of the natives of the colony, as well as of 
ordinary people. The object of the act was to relieve persons from 
being obliged to burden their friends with the responsibility of acting 
as trustees. Many owners of property avail themselves of the act. 
The Public Trust Officer never dies, never leaves the colony, never 
becomes insolvent. The office enjoys great popularity, and no fault 
could be found with the provision for placing the savings of the civil 
employees in the hands of the public trustee to be administered in 
the same way that he administered other trust funds. He invested 
it in ways he thought best, subject to the provisions of the act, lend- 
ing it to the Government, to municipalities, and harbor boards, and 
investing it in mortgages. When the employee left the civil service 
the amount of his accumulations was returned to him with interest. 

This new method of providing for retiring officials met with the 
general approval of the legislature. The object of the bill was plainly 
declared to be retrenchment in the civil service. Mr. Cowan, a mem- 
ber of the House, said : 

This bill is the carrying-out of a pledge made by the premier some 
time ago, that he would endeavor to reduce the cost of the civil 
service by from £30,000 to £40,000 ($145,995 to $194,660). I com- 
mend him for his endeavors, and I believe that, after this bill is 
amended in committee, it will have an effect, and a considerable 
effect, in that direction. (^) 

Very httle opposition was expressed, and that was mild. Mr. 
Conolly, of the House, complained that the clause seemed to mean a 
general reduction of salaries. Said he: 

It must be remembered that it amounts to a reduction on all 
salaries of 5 per cent. I do not say that there is anything wrong in 
this provision, making a reduction in salaries by way of securing a 
pension or retiring allowance, and I believe, as the premier says, it is 
adopted in many large concerns. I think it exists in some of the 
English railway companies, and I do not think it is a bad plan at all. 
But I say the immediate effect is to reduce every man's salary by 5 
per cent, and that, to those who have had no increase for a number of 
years is a species of injustice. (*=) 

oNew Zealand Parliamentary Debates, vol. 55, p. 372. 
6 Idem, p. 381. 
cidem, p. 376. 



CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 219 

"In the legislative council Mr. Bonar contended that the provision 
should be amended so as to enable officers who had made arrange- 
ments with a life insurance office to be exempt from the payment of 
the 5 per cent, as they would still have to keep up their premiums. 

Mr. Hatch of the House wished to limit the deduction to salaries 
above a certain amount, but held that the civil service was too well 
treated as it was, and that the principle of deductions was, therefore, 
quite proper in the interest of the colony. Said he : 

I do not see how it [the deductions] can be taken off salaries of £40 
to £50 ($195 to $243) a year; but when the salary rises to, say, £150 
($730) a year there is no reason why the recipient of that salary 
should not pay to a fund to provide something for himself when he 
retires from the service. In fact, I do not see why we should not 
bring the civil service down to the position of the merchant service. 
If an employee who has been a long time in the latter service gets a 
present of £100 or more on retiring, his employer considers that he has 
been very liberal; but we see parties leaving the former service who 
have been in the receipt of £500 or £600 ($2,433 or $2,920) for years, 
and who get their thousand pounds or more when they retire. The 
sooner we bring the civil service to the position of the merchant service 
the better will it be for the colony, and the better we shall be served. C*) 

In answer to this, another member of the House, Mr. Gore, said : 

I think the principle of clause 11 is very good. A previous speaker 
has said that the civil servants are very well able to look after them- 
selves — and no doubt any man of fair education and good common- 
sense is able to take care of himself. But we have a duty to our- 
selves, and, although there may be many of the civil servants able to 
take care of themselves, there may be many others who are not provi- 
dent enough to do so. I am not one of those who wish to see salaries 
reduced beyond what is a fair remuneration for a fair day's work. I 
think there are many of them who are paid too little, and possibly 
there may be some who are paid too much. Q') 

With this limited discussion the compulsory-savings clause in the 
civil service reform bill was passed and became a law. While it 
appears to have been satisfactory to a certain extent, it was apparent 
that, for the good of the service, other or additional legislation was 
necessary. It afforded no adequate provision for employees who 
might live many years after retiring from the civil service. The 
obvious complement of the scheme, a system of deferred annuities 
bought with the savings of the employees, is said to have been re- 
garded with distrust, owing to the fact that New South Wales had 
inaugurated a scheme with some such provisions in 1884, and while 
the faults of that plan were not generally understood, nor the reasons 
for its failure, it was believed in New Zealand, a few years after its 
inception, that the fund was hopelessly insolvent. ('=) 

oNew Zealand Parliamentary Debates, vol. 55, p. 376. 
& Idem, p. 378. 

c Report of Royal Commission on Superannuation in the Civil Service. 1903. 
Minutes of evidence, p. 116. 



220 civil-seevice eetirement in new zealand. 

Need of a Proper Superannuation System Recognized. 

The way in which thoughtful students of pohtical institutions in 
New Zealand took note of the civil service's need of a proper super- 
annuation scheme and the inadequacy of the existing law is weU 
shown in the last chapter of Mr. William Gisborne's work entitled 
The Colony of New Zealand, published first in 1888, only two years 
after the passage of the civil service reform bill. As Mr. Gisborne 
had been previously a member of the House of Representatives and a 
Responsible Minister, his words may be taken as those of one who 
spoke with authority. Said he: 

The civil service is an important factor in the work of representa- 
tive institutions. Under the system of responsible government, 
which, in the case of British colonies is the outcome of those institu- 
tions, the civil service should, of course, be adapted to that system. 
It is very questionable whether under any system a civil service 
should, in the public interests, be in its personal composition change- 
able according to the changes of political parties in power. But under 
responsible government such periodical changes of persons employed 
in the civil service would be absurd, and most mischievous. Respon- 
sible government means that Ministers, the responsible officers of the 
Crown, assume and resign office practically at the will of a majority 
of the representatives of the people. Necessarily, therefore, at cer- . 
tain times, often at no distant intervals, ministers undertake the 
charge of executive departments, with the administrative work of 
which they are more or less unacquainted, and when, as during 
session, their time is absorbed by parliamentary work. It is indis- 
pensable then that there should be in each department permanent 
public servants, who are fully acquainted with their official work, and 
from whom the new ministers can at once obtain information neces- 
sary both for political and administrative purposes. Moreover, these 
permanent officers continue to carry on uninterruptedly the routine of 
public business. It is also necessary for the public good that these 
officers should be disconnected from political partisanship, and be 
loyal in respect of public business to each successiv-e ministry. They 
should not be disqualified from voting at elections, but they certainly 
should not be allowed to take up active political positions in other 
respects. It is only in these ways that, under a system of responsible 
government, the civil service can become adapted to that system, and 
the public interests in all administrative work be best promoted. 

These indispensable conditions of a civil service under a system 
of responsible government give a specialty to that service, and render 
its treatment one altogether distinct from that applicable to the 
private staff of a mercantile or financial establishment. Those who 
argue that Ministers of the Crown should be able to deal with the 
appointment, removal, and promotion of pubhc servants just in the 
same way that the head of a firm would deal in those respects with his 
clerks, forget that those Ministers are only ephemeral representatives 
of political parties, and that they are dealing with matters not per- 
sonally their own, while heads of firms are in both respects on a 
totally distinct footing. The adoption in the civil service of the 
practice in these respects by private firms would be disastrous to 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 221 

public interests. Civil servants are not the personal servants of the 
Ministers of the day, but are the servants of the public, independently 
of political parties. It is in the public interests that these servants, 
while they are subject to rules which insure discipline and abstinence 
from active participation, beyond voting, in political struggles, 
should have held out to them some reasonable prospect of continuity 
of office, except in cases of misconduct, and thus secure to the public 
the growing advantage of their cumulative knowledge and experience. 
In this view it is not the Ministry, and it is not the civil service itself, 
which should be specially consulted, but the sole consideration should 
be what is most to the permanent advantage of the public as a whole. 
Accordingly, the problem is how, under the circumstances, public 
administration can be best conducted, and at the lowest cost com- 
patible with that condition. Responsible government makes this 
provision in the case of high political office ; the question now is what 
to do in the case of the rank and file of the official army. 

The limitation of the number employed, the appointment of 
qualified persons, and the appropriation of salaries would rest with 
Ministers of the Crown and with the legislature, respectively. The 
proper organization of the civil service would indirectly, to some 
extent, affect these subjects, and would directly make provision on 
other subjects which essentially involve the economy and efficiency 
of public administration. Shortly, what is required, and what may 
be reasonably anticipated from proper organization, is to attract 
good men to the service, and to keep them there. For this purpose 
a system based on definite conditions which would answer that two- 
fold object should be devised and adopted under legislative sanction. 
Vague, fluctuating, capricious treatment of public servants is repug- 
nant to proper organization. Promiscuous patronage, arbitrary 
removal, and spasmodic rushes into indiscriminate retrenchment 
tend only to discouragement of good service, to the infliction of 
injustice, and, in the end, to the increase of expenditure and to the 
serious injury of public interests. 

The following principles governing the constitution and conduct 
of the civil service in New Zealand appear to me to be vital: 

First, the persons first appointed should have successfully passed 
either a competitive or a standard educational examination. 

Secondly, there should be in the service classification which would 
allow of gradual promotion in rank and in pay taking place. 

Thirdly, provision should be made for reasonable allowance in 
cases of removal from office on public grounds other than those of 
misconduct. 

Fourthly, pensions on a graduated scale should be provided, 
either by general contribution from civil servants or by the State, 
for cases of retirement from illness, infirmity, or old age. 

Fifthly, proper regulations should be made for the conduct and 
discipline of the civil service, and for the prohibition of civil servants 
taking an active part in politics beyond voting at elections. 

It is, of course, impossible to hope that rules can altogether 
provide for all possible contingencies. The object of the rules is to 
assert general principles which would lessen as much as possible 
capricious or fluctuating exercise of authority over civil servants, 
would subject them to equitable treatment, and thus tend to tlic 



222 CIVIL-SEEVICE RETIKEMENT IN NEW ZEALAND. 

greatest public advantage. At the same time it must be antici- 
pated that from time to time exceptional cases will occur, which 
must be dealt with exceptionally on their own merits. 

Looking at the present state of the New Zealand civil service, 
I regret that, owing to the absence of practical recognition of the 
foregoing principles, this state has been, and still is, lamentable, not 
only on account of the individuals directly concerned, but also on 
account of the public interests. It is in the latter view that this 
subject should be considered, though it is impossible to refrain from 
sorrow that a service containing a great number of able, faithful, 
and old public servants should be unjustly treated and undeservedly 
abused. The civil service seems to be kept as the scapegoat of the 
sins and misfortunes of the colony; and its home is the wilderness. 
So lately as September 10, 1890, Sir Frederick Whitaker, who has 
been in the colony since its foundation, and has continuously since 
1852 held high political position, stated, in his place in the legis- 
lative council, that he had for many years past carefully watched 
the civil service here and in other countries, and had come to the 
conclusion that clearly the civil service of New Zealand was the 
worst paid and the worst treated in the British dominions. This 
corroboration of my view is the more strong because Sir Frederick 
Whitaker has had unrivaled opportunity of forming a judgment @n 
the subject and his impartiality can not be questioned. I am glad 
to observe that recently a civil-service association has been formed. 
So long as this body acts, as it declares its intention to do, in the 
furtherance of its public interests, in due subjection to the law and 
the regulations of the service, it may be reasonably hoped that this 
association may do much legitimately to improve the status of the 
service and to strengthen its claims to just consideration. This 
step, and the fact that many leading public men in New Zealand 
are in favor of the general principles which I have mentioned in 
relation to the civil service, and that in the latest session the House 
of Representatives sanctioned classification in the post and telegraph 
department of the service, hold out a prospect that a better time is 
coming, and that, in the interests of the public at large as well as in 
its own, the New Zealand civil service may be placed on a proper 
footing of organization and efficiency. (") 

CIVIL SERVICE INSURANCE ACT, 1893. 

Main Features of the Act. 

The compulsory savings arrangement having been found inadequate 
as a retirement measure for the civil service, the Civil Service Insur- 
ance Act, a combined assurance and annuity scheme for the benefit of 
civil servants, was passed in 1893 and made compulsory on all new 
entrants into the service under forty years of age. This provided that 
in return for monthly deductions, amounting to about £5 ($24.33) 
annually for every £100 ($486.65) of salary, the Government Life 
Insurance Department should contract to give a uniform initial insur- 

oThe Colony of New Zealand, by William Gisborne, 1891, pp. 340-344. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 223 

ance of £100 ($486.65), increasing with the salary until the age of 60 
was attained, and after that age an annuity varying with the age at 
entry. Those who elected to pay a small extra premium could have 
the assurance continued beyond age 60 until death. Employees who 
had been appointed under the act of 1886 and had funds accumulated 
to their credit in the hands of the public trustee, or men of a certain 
age whom it would have been hard to force to insure in this way, were 
allowed to elect whether they would go on under the old system of 
1886 or begin the new system of compulsory insurance under the act 
of 1893. 

Purpose of the Act. 

The general purpose of the act was set forth by Mr. Ward, a member 
of the House, on moving the second reading of the bill. Said he: 

Under "The Civil Service Reform Act, 1886," all persons appointed 
to the civil service were required to deposit with the public trustee 5 
per cent of their salaries. Such amount was allowed to accumulate 
at interest, and remain in the Public Trust Office till the officer affected 
left the service. He thought it would be conceded that such an ar- 
rangement as that was a wise one, and had the effect of causing thrift 
to be practiced by those who joined the service. But, in the opinion 
of the Government, the existing measure did not go far enough. It 
contained nothing in the nature of an insurance or a pension in old 
age, and the Government were of opinion that a scheme of more 
importance should be adopted, so that there might not only be pro- 
vision for a civil servant's widow in the event of his death, but that 
civil servants themselves should have an assured income to look for- 
ward to after retiring from the service. The Government attach 
great importance to the fact that this scheme would be self-support- 
ing. The amount necessary would be paid by the civil servants, 
except in one particular. In the event of incapacity, arising from no 
fault of the officer, then a retiring compensation of one month's salary 
for each year is provided for ; and there could be very little likelihood 
of anything in the shape of a large sum of money being required in 
this way. He might say that those who were being provided for 
under the measure would be treated in all respects the same as out- 
siders who found it desirable to patronize the Government Insurance 
Office. In fact the ordinary procedure of the office would be carried 
out by that department in dealing with insurances under this act. 
The act would only deal with those appointed under the Civil Service 
Reform Act of 1886. Those appointed prior to that act were entitled 
either to a pension or to compensation for loss of office. Those ap- 
pointed since the act referred to were to retire at sixty years of age; 
and he might say that provision was made in the bill to enable those 
who might receive a pension in the event of their retiring at sixty years 
of age to receive also the full amount of insurance payable to them 
even if death took place after sixty. There was no amount stated in 
the bill as actually payable in the event of death, but the intention 
was to insure one year's salary. * * * C*) 

o New Zealand Parliamentary Debates, vol. 79, p. 191. 



224 civil-seevice ketieement in new zealand. 

Debate on the Bill in Parliament. 

In the debate which followed several objections to the bill were 
brought forward. It was asked whether those of the civil employees 
who had already insured their lives would have, under this bill,, to 
effect another insurance, and it was explained by Mr. Ward that they 
would not be exempted if already insured in the government office 
or elsewhere, as the new insurance with that office was to be merely 
a variation of the compulsory savings arrangement under the Public 
Trust Office, and intended to take its place. 

Several members expressed alarm at the idea of civil employees 
being brought under the government insurance scheme, fearing that 
the standard of health among them might be lower than among other 
policy holders. Although civil employees were required to pass a 
medical examination before joining the service, it was feared that the 
health of many might have deteriorated since such examination and 
the interests of other policyholders would therefore be jeopardized, 
if such persons were accepted by the Life Insurance Department on 
terms other than those on which ordinary insurers were admitted. 
An interesting section in the act gave the government power to 
bring in certain classes of people under the terms granted to civil 
servants, provided two-thirds of their number asked for it. The 
classes of Government employees thus privileged were — 

(1) All members of the police force. 

(2) All school-teachers under the "Education Act, 1877." 

(3) All women and girls employed in the telegraph or telephone 
service of the Government. 

(4) All persons permanently employed in the Government printing 
office. 

(5) All housekeepers, messengers, and gardeners in the permanent 
employment of the Government. 

(6) All wardens of prisons, lunatic asylums, or sanitarium attend- 
ants, criers of court, bailiffs, post-office distributers and telegraph 
messenger boys, light-house keepers, boatmen, laborers, and other 
persons in the permanent employment of the Government. 

(7) All clerks, artisans, workmen, and other persons in the tem- 
porary employment of the Government. 

(8) Officers, noncommissioned officers, and men of the defense 
force. 

It was feared by some that to admit such bodies of public em- 
ployees en masse into the privileges of the Government Life Insurance 
Department was an unwise procedure. The reply to these objections 
made by Mr. Ward in support of the bill, which voiced the view that 
eventually prevailed, is recorded as follows: 

He might say at once that, in the event of an officer who was 
desirous of coming under this measure being in a very bad state of 



CIVIL-SEE VICE RETIREMENT IN NEW ZEALAND. 225 

health, and shortly expected to die, he would not be allowed to trans- 
fer, because the Government Insurance Department could not be 
expected to have its benefits shared by persons who were really known 
to be in such a state of health that no office would accept them; and 
that was only fair and proper. Upon the whole, the Government 
Insurance Department would accept without fresh medical certifi- 
cates the whole staff of any department that applied to come under 
the bill, for the simple reason that every officer who now entered the 
civil service had to obtain a medical certificate before he was allowed 
to come in, and it was within the knowledge of officers that there 
were candidates refused entirely on the score of weak health. That 
being so, he thought it might be accepted pretty generally that the 
bulk of the civil servants of New Zealand were in very excellent 
health. He could only say, speaking from a short experience of the 
present system, that there had not been many cases of death. How- 
ever, this scheme had received the very close attention of the Gov- 
ernment Insurance Department, and they found that, provided the 
scheme were made to embrace a whole department, the basis would 
be so broad that they would be quite justified in taking the bulk of 
these people in. * * * It was not desirable, if a few officers alone 
applied, to admit them, as the honorable gentleman had indicated. 
The very thing which other honorable members were so anxious to 
prevent might then possibly take place. Neither ought they to admit 
cases that would be refused by other offices on the score of health. 
The safety of the thing consisted in the officers of any department 
coming in in a body. This was a very important point, and he might 
say at once that the Government would not alter the bill in this 
respect. He felt sure the officers of the departments would be very 
glad to take advantage of these provisions, and, by obtaining the 
two- thirds majority, they could, as a body, come under the act. 

* * * ^o\ 

It should be explained that the New Zealand Government Life 
Insurance Department had been established in 1869, at a time when 
the failures of two well-known British offices had drawn public atten- 
tion to the need of greater security in life assurance. The manage- 
ment of the department is vested in an officer called ''The Govern- 
ment Insurance Commissioner," who is appointed by the governor on 
the recommendation of the Minister of the day. The department is 
conducted almost exactly on the same principles as those generally 
adopted by private mutual life insurance offices. All the usual classes 
of policies are issued to those who can pass the customary physical 
examination, and the colony is vigorously canvassed by traveling 
agents in search of new business. 

The people of New Zealand took great interest in the department 
from the start. It has easily distanced all competitors. Its life- 
insurance business is almost as much as that of all of its ten. com- 
petitors together. The people are said to prefer the government 
insurance because it has the guaranty of the Government behind it, 

a New Zealand Parliamentary Debates, vol. 79, pp. 194, 195. 
35885— S. Doc. 290, 61-2 15* 



226 CIVIL-SEKVICE EETIREMENT IN NEW ZEALAND. 

because the rates are lower than in ordinary private companies, be- 
cause its pohcies are incontestible and nonforfeitable, and because 
the profits of the business go to the insured. This state life insurance 
was not compulsory in the beginning for any class of citizens, but the 
act of 1893 made it compulsory for civil employees under forty years 
of age in lieu of a civil pension scheme. In case of leaving the public 
service an employee could surrender his policy and get a surrender 
value. Under no condition had he to forfeit the surrender value of 
his pohcy, even if dismissed for misconduct. The insurance depart- 
ment has from the first made the best possible terms to members of 
the civil service, so that they have enjoyed an advantage, in that 
respect, over the outside public. The money for the premiums is 
collected in the cheapest and easiest manner possible. It is simply 
deducted from the salaries by the proper government officials in the 
course of keeping their routine accounts and it is then handed over 
in a lump sum to the Government Life Insurance Department, which 
can thus easily afford to make especially favorable rates to the civil 
employees, since it has no commissions to pay for securing the 
business. 

Criticism of the Act. 

The Insurance Act of 1893 does not seem to have been sufficient, 
however, as a substitute for a retirement plan. It can easily be seen 
that the price of endowment assurance is so high as to make it of 
little use to the civil employee of small salary as a means of furnish- 
ing him with an adequate retirement allowance. 

The inadequacy of the endowment assurance as an old-age allow- 
ance made it necessary for the Government to supplement this pro- 
vision, in a great many cases, with gratuities and compensations. 
The custom obtained of granting a gratuity to men who had been a 
long time in the service, especially prominent and useful employees, 
when they went out, "six months' and sometimes a year's salary. 
This was done by special act of legislature, but the law of 1893 pro- 
vided distinctly for granting an employee who became permanently 
incapacitated through no fault of his own a sum equal to one month's 
salary for each year of service. This allowance on account of in- 
validity was entirely separate from the annuity which came to him 
on reaching the age of 60. Under these terms a civil employee who 
became incapacitated from further work at the age of 57, 58, or 59 
was in a much better financial position than one who kept his health, 
as he received a large lump sum, and at the age of 60 a regular an- 
nuity al§o. 

The law was considered faulty, as it made no provision for widows 
and orphans except in the case of people who were killed in the serv- 
ice. If an employee under 60 years of age were killed at his work, his 
family received not merely his insurance but a gratuity also based on 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 



227 



his length of service. In many cases also of natural death special cir- 
cumstances made it seem necessary to vote the widow a "compas- 
sionate" allowance. 

A complete summary of the compensation, gratuities, and pensions 
paid yearly from 1858, the date of the inauguration of the first pen- 
sion system in the colony, until 1907, the year when the Public 
Service Superannuation Act was passed, was made by Mr. Morris Fox, 
the actuary of the Government Life Insurance Department, who ex- 
tracted this information from the journals of the House of Repre- 
sentatives. It will be seen that all the payments for pensions, gra- 
tuities, and compensation totaled for the year 1906-7 the large sum 
of £42,157 ($205,157). The summary is as follows: 



SUMMARY OF COMPENSATION, GRATUITIES, AND PENSIONS, 1859 TO 1907. 
[From Report on Public Service Superannuation Bill, 1906, Appendix 6, p. 24.] 



Financial year. 


Compensa- 
tion. 


Gratuities. 


Total com- 
pensation 
and gratu- 
ities. 


Pensions 
under Civil 
Service Acts. 


1859-60 








$907. 76 


1860-61 




$2, 189. 93 
1,946.60 
2,877.32 
2,141.22 


$2, 189. 93 
1,946.60 
2, 877. 32 
2, 141. 22 


1, 168. 14 


1861-62 




1,630.78 


1862-63 




1,791 58 


1863-64. . 




1,791.89 


1864-65 




1,963.53 


1865-66 




5,775.60 
4,331.19 
3,437.63 
601. 42 
4, 743. 21 
4,014.86 
12, 394. 06 
4, 118. 80 
13, 173. 35 
7,202.42 
14, 721. 16 
8,597.48 
5,718.14 
3, 284. 89 
13, 293. 65 
9, 752. 99 
14, 250. 73 
7,786.40 
13, 633. 82 
14,069.25 
21,597.57 
17, 173. 47 
6,502.82 
9, 903. 33 
7,562.54 
18,918.52 
16, 492. 63 
26, 777. 92 
9,871.70 
17, 969. 55 
9, 100. 36 
17,425.11 
6,279.25 
7, 105. 09 
13, 528. 87 
24, 741. 29 
9, 158. 75 
19,052.35 
11,241.62 
16,789.43 
14, 8.30. 66 
40, 769. 10 


5, 775. 60 

4, 331. 19 
10, 191. 32 
36,258.92 

9, 777. 16 
11, 172. 65 
25,311.27 
11,746.19 
14,596.11 

8,044.32 
14,786.05 
14, 238. 38 

9,397.21 
20, 742. 95 
16,447.91 
102,529.51 
52, 196. 27 
14,322.58 
30, 904. 04 
45, 292. 29 
61,279.90 
36, 140. 47 
90,347.83 
82,467.14 
42, 185. 80 
49,609.97 
101,968.48 
76,-320.41 
38,978.36 
35, 380. 37 
32, 102. 56 
44, 325. 38 
23, 444. 51 
25,532.27 
25, 672. 27 
49, 798. 78 
43, 456. 79 
67,736.63 
109, 669. 26 
106,389.42 
45,211.35 
78,688.91 


10, 655. 89 


1866-67. 




12, 328. 43 


1867-68. 


$6, 753. 69 
35,657.50 
5,033.95 
7, 157. 79 
12,917.21 
7,627.39 
1,422.76 
841. 90 
- . 64.89 
5,640.90 
3, 679. 07 
17,458.06 
3, 154. 26 
92,776.52 
37, 945. 54 
6, 536. 18 
17,270.22 
31,22.3.04 
.39,682.33 
18,967.00 
83, 845. 01 
72,563.81 
34, 623. 26 
30, 691. 45 
85,475.85 
49,542.49 
29, 106. 66 
17, 410. 82 
23,002.20 
26, 900. 27 
17, 165. 26 
18, 427. 18 
12, 143. 40 
25,057.49 
34, 298. 04 
48, 684. 28 
98,427.64 
89, 599. 99 
30,380.69 
37, 919. 81 


13, 790. 67 


1868-69 


25, 486. 95 


1869-70. 


28, 524. 87 


1870-71 . 


31,210.69 


1871-72 


34, 164. 51 


1872-73. 


35, 958. 24 


1873-74. 


41,672.69 


1874-75 


40, 152. 07 


1875-76. 


39, 191. 53 


1876-77 


51,387.14 


1877-78. 


57, 374. 37 


1878-79 


67, 418. 08 


1879-80 


62, 134. 86 


1880-81. 


82, 700. 49 


1881-82 


95, 512. 69 


1882-83. . . 


94, 595. 31 


1883-84. 


94, 791. 05 


1884-85 


99, 597. 57 


1885-86. 


93, 157. 06 


1886-87 


96, 230. 17 


1887-88 


105, 997. 32 


1888-89. 


110,579.21 


1889-90 


112, 997. 74 


1890-91. 


113,805.76 


1891-92 


107,911.70 


1892-93 


113, 152. 94 


1893-94. 


121,512.90 


1894-95.* 


122, 944. 66 


1895-96 


124, 986. 16 


1896-97. 


125, 154. 03 


1897-98 


127, 232. 55 


1898-99. . 


116,318.31 


1899-1900 


109, 374. 61 


1900-1901. 


104, 022. 59 


1901-2 


101,201.95 


1902-3.. 


115, 279. 94 


1903-4 


HI, 570. 94 


1904-5 .. 


115 629 48 


1905-6 


115,672.67 




126 471 96 






Total 


1,217,075.80 


516,848.05 


1,733,923.85 


3,519,106.43 





228 CIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. 

THE PUBLIC SERVICE SUPERANNUATION ACT, 1907. 

The Civil Service Insurance Act proving thus inadequate from the 
first as a superannuation measure, different classes of public servants 
made successful efforts from time to time to secure more satisfactory 
legislation. In 1899 — only six years after the passage of the insur- 
ance act — the members of the police force secured the passage of a 
provident fund act which made provision for retirement on more sat- 
isfactory basis than that offered them under the terms of the insur- 
ance act. In 1902 the employees of the government railways and in 
1905 the teachers did likewise. In 1906 a "Civil-Service Superannu- 
ation Bill" was prepared and referred to the public accounts com- 
mittee. The provisions of this measure are said to have been drawn 
up under the direction of Sir Joseph Ward, the premier, who took 
the livehest interest in the bill. On October 24, 1906, the com- 
mittee recommended, in a report to the House of Representatives, 
"that the civil service superannuation bill, as submitted, or any 
other suggested scheme that will meet the position, be referred to the 
actuary for examination and investigation and that he be requested 
to furnish a full report on such scheme in time to enable it to be dealt 
with next session." Mr. Fox, the actuary, accordingly took up the 
work and submitted, on July 3, a very full report on the bill, together 
with data and statistics relating to the civil service. As an outcome 
of his investigation he recommended the adoption of the bill on con- 
dition of certain modifications. The majority of the amendments 
recommended by Mr. Fox were accepted, and "Public Superannuation 
Bill, 1907," was drafted. The actuary made a favorable report on 
this bill, and on November 25, 1907, it became a law. It was con- 
solidated the following year with the Public Service Classification Act 
of 1907, and the whole is now known as "The Public Service Classi- 
fication and Superannuation Act, 1908." 

Superannuation Bill First Proposed, 1906. 

The special features of the present law can best be brought out by 
a review of the investigations and reports which led to its enactment. 

The benefits provided in the first bill proposed, the Civil Service 
Superannuation Bill, 1906, were as follows iC') 

I. On attainment of pension : Males, at age 60, or after 40 years' serv- 
ice; females, at age 50, or after 30 years' service: 

(a) A pension of one-sixtieth of yearly salary for each year's serv- 
ice, with a limit of forty-sixtieths (two-thirds) of salary. 

(h) Or the option, in lieu thereof, of a return of total contributions. 

II. On retirement before pension age (on the ground of being 
medically unfit for further duty) : 

(a) At any time, a pension of one-sixtieth of yearly salary for each 
year's service, limited to fort3^-sixtieths. 

« Report on Public Service Superannuation Bill, 1906. Appendix 1, p. 17. 



CIVIL-SEEVICE EETIREMENT IN NEW ZEALAND. 229 

(b) Or the option, in lieu thereof, of a return of total contributions. 

III. On retirement before pension age (on other grounds than 
medical unfitness) : 

(a) On ordinary dismissal or retirement, a return of total contri- 
butions. 

(b) On dismissal for the commission of a crime, a return of the 
balance of total contributions after any defalcations have been made 
good. 

IV. At death: 

(a) At death before pension entered upon, leaving no widov/ 
(widower) or children, a return of total contributions. 

(6) At death before pension entered upon, leaving a widow (wid- 
ower) or children, £18 ($88) yearly during widowhood (widower- 
hood), and 5s. ($1.22) weekly for each child till fourteen years of 
age; with the option of a return of such portion of the total contri- 
butions as the board thinks fit. 

(c) At death after pension entered upon, a return of the difference 
between pension received and contributions paid to the fund. 

V. Benefits already accrued: 

(a) In addition to benefits I to IV, the bill provides that (1) moneys 
already deducted from salaries, under "The Civil Service Reform 
Act, 1886," or ''The Post and Telegraph Classification and Regu- 
lation Act, 1890," shall be invested with the Public Trustee and 
become the property of the contributors on retirement; (2) life-assur- 
ance policies and annuities effected under "The Civil Service Insur- 
ance Act, 1893," may be kept alive or the surrender value invested 
with the public trustee for the benefit of the holders. 

(h) The absolute or contingent rights to compensation for loss of 
office when the act comes into operation (if any) are also preserved 
until a corresponding amount of pension has been drawn. 

Note. — The pensions are payable monthly, and are computed on the salary at 
retirement, unless there has been promotion within five years, when the average 
salary for the last seven years is taken as the basis. 

To pay for these benefits the bill provided for the establishment 
of a superannuation fund made up of contributions from the 
employees, the Government guaranteeing the future adequacy of 
the fund. 

Collection of Statistics op Civil Service Made by Actuary. 

The first step taken by Mr. Fox in examining into the soundness 
of the proposed scheme was the collection of statistics regarding 
the personnel of the public service. Receiving instructions to 
include in his estimates all departments except railways and police 
and such officers of the education department as were included in 
the teachers' scheme, he addressed a circular to all other depart- 
ments of the colonial government asking for information concerning 
the number, age, sex, salary, and class of employment of all persons 
in each department to whom the provisions of the bill would apply. 
This was done in order that he might make a valuation of the accrued 
liabilities, which would have to be assumed by the superannuation 
fund on the inauguration of the proposed plan. The unfortunate 



230 



CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 



experience of the neighboring colony of New South Wales served 
as a warning in this respect, and the actuary of New Zealand felt 
the necessity of pointing out the importance of differentiating care- 
fully between liabilities that have to be assumed to cover past serv- 
ices — that is, provision for old employees — and those that may be 
incurred to cover future services ; that is, provision for entrants into 
the service. 

The information desired was furnished respecting 5,593 persons 
among the various departments, as follows : 

TABLE SHOWING 5,593 PERSONS TO WHOM IT WAS THOUGHT THE PROVISIONS OF 
THE BILL WOULD APPLY, DISTRIBUTED AMONGST THE VARIOUS DEPARTMENTS. 

[From Report on Public Service Superannuation Bill, 1906, p. 10.] 



Department. 



Males. 



Females. 



Total 
number. 



Total sala- 
ries. 



Post and telegraph 

Lands and survey 

Justice 

Agriculture 

Mental hospitals 

Customs 

PubUc works 

Printing and stationery 

Goveriunent life insurance 

Prisons 

Roads 

Marine 

Valuation 

Defense 

Colonial secretary 

PubUc trust 

Land transfer and deeds registry 

Tourist and health resorts 

Native 

Mines 

Labor 

Audit 

Land and income tax 

House of Representatives 

Treasury 

Public health 

Inspection of machinery 

Education (excluding those coming under "The teachers' 

superannuation act, 1905 " 

Stamps 

Crown law 

State fire insurance 

Registrar-general 

Advances to settlers 

Old-age pensions 

Legislative council 

Hospitals 

Electoral 

Friendly societies 

Land for settlements 

Industries and commerce 

Colonial museiam 

Native land purchase 

Deduct 86 civil servants entitled to pensions under civil serv- 
ice acts and not eligible under the present bill 

Total 



2,275 
324 
190 
182 
' 268 
188 
170 
173 
123 
120 
96 
107 
77 
73 
60 
65 
SO 
43 
32 
39 
43 
40 
42 
30 
37 
22 
24 

25 

22 

7 

25 
16 
19 
18 
5 
2 
5 
4 
2 
2 
3 
1 



5,049 
86 



297 
19 
1 



165 

4 

5 

40 

12 

IS 

2 

1 

4 

1 

4 

13 

1 

5 



2,572 
343 
191 
182 
433 
192 
175 
213 
135 
133 
98 
108 
81 
74 
64 
78 
51 
48 
32 
39 
47 
42 
44 
36 
44 
22 
25 

38 
26 
7 
27 
16 
19 
18 
5 
3 
6 
5 
2 
2 
3 
1 



,622,588 
371, 995 
228,419 
203, 210 
192, 884 
173, 758 
169, 807 
151,733 
121,390 
97, 403 
96, 259 
79, 952 
76, 209 
72,287 
59, 512 
57, 176 
57, 142 
48,772 
47,838 
46,811 
45, 326 
44, 991 
44,378 
41,604 
39,784 
31,910 
30, 0S5 

26, 698 
23, 116 
18, 298 
17,300 
16, 926 
15, 159 
14, 994 
8,322 
7,105 
6,801 
5,791 
4,915 
4,258 
4,020 
2,555 



4,428,481 
164,819 



4,963 



Assuming that the 5,593 persons referred to would all have been 
eligible as members of the fund if it had come into operation at the 
time the statistics were collected, it was necessary to value the liabil- 
ities resulting from the application of the proposed contribution rates 



CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 231 

and retiring benefits to those 5,593 persons. With great care Mr. Fox 
explained the assumptions made and the statistical foundations of the 
calculations on which this valuation rested. Here again he seems to 
have been mindful of the experience of the actuaries of New South 
Wales whose explanations and warnings in connection with the super- 
annuation account of that colony were so disregarded, for he wrote: 
"I feel this to be all the more necessary because, unfortunately, I am 
aware that the use of recognized actuarial methods, though admitted 
in smaller matters, is viewed with disapprobation and absolute sus- 
picion by many people when applied to the investigation of certain 
complicated statistical and financial matters, although these matters 
peculiarly depend for their ultimate success on a proper treatment 
of problems involving a reasonable estimate of many probabilities — 
of life and death, widowhood, orphanhood, bachelorhood, increases in 
salary, and retirement from service — all these being spread over a long 
series of years and . combined with the interest-earning power of 
money. While it is impossible in individual cases to make an accu- 
rate estimate of such matters, it is found that in a large body of per- 
sons the numbers living, dying, or doing acts within their own control, 
such as resigning or marrying, are singularly constant from year to 
year." 

The rate of interest assumed by Mr. Fox in his calculations was 
4 per cent, and he stated it as his opinion that the Government should 
guarantee that rate of interest on the fund, as is done by many of the 
British railway companies in their pension schemes. He thought that 
the fund would probably be able to earn more than 4 per cent for some 
years, but held that without a guarantee it would not be justifiable to 
assume so high a rate as 4 per cent over a long period of time. 

The mortality table used by Mr. Fox as a basis for calculating the 
longevity of the civil servants, and considered by him particularly 
appropriate to a New Zealand fund of this description, was Dr. Farr's 
table relating to certain healthy districts in England. For chil- 
dren's annuities he used the mortality experience of the children 
of a large body of Scottish Presbyterian ministers, which was inves- 
tigated by Mr. Archibald Hewat in 1902. The probabilities of leav- 
ing children, with their ages, were taken from the New Zealand popu- 
lation returns from 1895 to 1899. The probabilities of leaving a 
widow or dying unmarried were derived from English census statis- 
tics utilized by Mr. George King in his investigation relating to family 
annuities. The ages of widows at death of husbands were taken from 
the scale adopted by Mr. H. W. Manly in his ''Hypothetical Expe- 
rience (1903)." 

The average retirement age was assumed to be 61 for men, 51 for 
women. The optional age provided in the bUl was 60 for men, but 
Mr. Fox assumed that many would not retire until after that age, 



232 CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 

thus making the average age later than 60. At the same time, since 
they would be allowed to retire as a matter of right before reaching 
the age of 60 when they had served 40 years, or, with the consent of the 
board, after 35 years, it would follow that all who joined the service 
before reaching the age of 20 would be able to retire on a pension 
between the ages of 55 and 60, and some of them between the ages of 
50 and 55. The bill made 50 the optional age of retirement for 
women, or earlier if they had had 30 years' service. Considering all 
these circumstances the assumption that men would retire at the 
average age of 61, women at the average age of 51, seemed to Mr. 
Fox to be reasonable. 

Having no data to work on, the actuary found himself unable to 
estimate the probable strain on the fund due to premature retire- 
ments on pension through physical disabilit}^. For the same reason 
he was unable to compute the relief that would probably ensue from 
those voluntarily retiring and leaving the interest on their accumula- 
tions in the fund. He assumed, however, that these two uncertainties 
would counteract each other, and though he said he could not speak 
confidently on that matter, he gave it as his opinion that the balance 
on either side would be immaterial. The uncertainty on these 
points convinced him, however, of the necessity for periodical inves- 
tigations of the progress of the fund. 

The final assumption made by Mr. Fox was in regard to the rate of 
salary increases from age to age. It is plain that the contributions 
and benefits (except those payable to widows and children) and the 
valuation of them depend on the amount of salary received, taking 
into account prospective increases in salary. The average salary 
received at each age at the present time was deduced by Mr. Fox 
from the data furnished him by the departments, and these average 
salaries were then graduated to remove irregularities. The present 
salary of each person was then assumed to increase from age to age in 
the same ratio as that of the graduated scale. The average and 
graduated salaries for men and women were shown to be as follows : 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 



233 



AVERAGE SALARY RECEIVED AT EACH AGE AT THE PRESENT TIME, AND THESE 
AVERAGE SALARIES GRADUATED TO REMOVE IRREGULARITIES. 

[From Report on Public Service Superannuation Bill, 1906, p. 12.] 



Age. 


Aver- 
age 
salary. 


Gradu- 
ated 
salary. 


Age. 


Aver- 
age 
salary. 


Gradu- 
ated 
salary. 


Age. 


Aver- 
age 
salary. 


Gradu- 
ated 
salary. 


MALES. 
15 


$157 
240 
242 
266 
300 
379 
432 
485 
530 
564 
603 
660 
670 
726 
799 
791 
821 
794 
844 
862 
856 
970 
912 
952 
1,025 
1,063 
1,028 
1,136 


$170 
204 
243 
285 
328 
375 
423 
467 
516 
566 
611 
659 
696 
728 
759 
784 
804 
830 
854 
876 
900 
922 
947 
976 
1,005 
1,034 
1,068 
1,097 


MALES— con- 
cluded. 

43 


$1,152 
1,134 
1,192 
1,263 
1,141 
1,225 
1,458 
1,134 
1,216 
1,133 
1,207 
1,307 
1,276 
1,396 
1,185 
1,105 
1,244 
1,129 


$1,134 
1,158 
1,180 
1,200 
1,212 
1,221 
1,229 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 
1,231 


FEMALES — con- 
cluded. 

23 


$303 
344 
327 
348 
334 
321 
436 
393 
375 
393 
518 
382 
401 
398 
474 
466 
481 
452 


$292 


16 


44 


24 


310 


17 


45 


25... 


327 


18 


46 

47 


26 


341 


19 


27 


355 


20 


48 


28 


369 


21 


49.. 


29 


381 


22 


50 


30 .. 


393 


23 


51 


31 


404 


24 


52 


32... 


414 


25 


53 


33 


423 


26 


54 

65 


34 


432 


27 


35 


439 


28 


56 

57 


36 


448 


29 


37 


454 


30 


58 


38 


459 


31 


59. 


39 


465 


32 


60 


40... 


473 


33 


FEMALES. 
15 


41 


481 


34 


42 


349 
427 
811 
575 
681 
414 
341 
473 
487 


491 


35 


43 


497 


36.. . 


16 


195 
195 
207 
219 
222 
273 
298 


195 
199 
209 
224 
239 
258 
276 


44 


502 


37 


17 


45 ... 


506 


38 


18 


46 


506 


39 


19 


47 


506 


40 


20 


48 


606 


41 


21 


49 


506 


42 


22 


50 


506 











Cost of Proposed Bill Based on Statistics Collected. 



The result of Mr. Fox's valuation of the scheme proposed in the 
bill, under the conditions assumed, showed that the capital value 
of the full actuarial hability involved was £1,816,719 ($8,841,063), 
of which £1,709,582 ($8,319,681) was incurred for men, and £107,137 
($521,382) for women. Mr. Fox also computed the value of the lia- 
bility involved under various suggested modifications of the scheme, 
such as with the addition of annuities to widows and children of 
pensioners, with modified contributions, with half pensions only for 
back service, and with the widows' annuities increased from £18 
($88) to £26 ($127) under all of the above conditions. He found 
that the capital value of the full liability involved ranged from 
£2,041,898 ($9,936,897) to £1,338,120 ($6,511,961), according to the 
nature of the scheme, as will be seen from the following table: 



234 



CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 



SUMMARY OF VALUATIONS OF THE FUND OUTLINED IN THE BILL AND OF 
MODIFICATIONS THEREOF. 

[From Report on Public Service Superannuation Bill, 190(5. Appendix B, p. 23.] 







Present value of— 




Pensions. 


Annuities. 


3 i 
2o 

III 

PI OJ o 

a:i c3 iS 


|38 

.2 '^ 

Pi 


o 


n 
.2 

B 
S 

a 
o 
o 

£ 

P 




Scheme. 


> 

o 


6 
'> 

0) 

M 

O 
fen 


o 
o 


a 
S 
2 

1 

o 


1 


I. With addition of 


(M. 

If. 

{¥^ 

/M. 
\F. 

{¥: 

/M. 
IF. 

if. 

fM. 

If. 

;m. 
If. 


Dollars. 

5, 647, 622 

503, 736 


Dollars. 

4,980,011 

181,185 


Dollars. 
1,297,978 


Dolls. 
419,370 


Dolls. 

55, 405 
18, 191 


Dolls . 

62, 783 

1,946 


Dollars. 
12, 463, 175 
705,058 


Dollars. 

3,624,540 

183,676 


Dollars. 

8,838,635 
521,382 


and children. a 








6,151,358 


5,161,196 


1,297,978 


419,376 


73,596 


64,729 


13,168,233 


3,808,216 


9,360,017 


II. Contributions 5, 6, 
7, and 10 per cent.a 


5,647,622 
503, 736 


4,980,011 
181,185 


810, 472 


387,928 


55,405 
18,191 


62,783 
1,946 


11,944,221 
705,058 


3,624,540 
183, 676 


8,319,681 
521, 382 










6,151,358 


5,161,196 


810,472 


387,928 


73,596 


64,729 


12,649,279 


3,808,216 


8,841,063 


III. Contributions 5, 
6, 7, 8, 9, and 10 per 
cent, a 


5,647,622 
503,736 


4,980,011 
181, 185 


810,472 


387, 928 


61,099 
18,916 


62, 783 
1,946 


11,949,915 
705,783 


4,099,233 
193,677 


7,850,682 
512, 106 










6,151,358 


5,161,196 


810, 472 


387,928 


80,015 


64,729 


12,655,698 


4,292,910 


8,302,788 


IV. W i t h one-half 
hack service only.o 


5,647,622 
603,736 


2,741,499 
90,595 


810,472 


387,928 


55,405 
18, 191 


62, 783 
1,946 


9,705,709 
614, 468 


3,624,540 6,081,169 
183,676^ 430,792 








6,151,358 


2,832,094 


810,472 


387,928 


73,596 


64, 729 


10,320,177 


3,808,216 6,511,961 


V. As in I b. 


5,647,622 
503,736 


4,980,011 
181, 185 


1,874,858 419,376 


55,405 
18, 191 


62, 783 
1,946 


13,040,055 
705,058 


3,624,540 9,415,515 








1 






6,151,358 


5,161,196 


1,874,858 419,376 


73,596 


64,729 


13,745,113 


3,808,216 9,936,897 


VI. As in 11 6... . 


5,647,622 
503,736 


4,980,011 
181,185 


1,170,680 387,928 


55, 405 
18, 19i 


62, 783 
1,946 


12,304,429 
705,058 


3,624,540 8,679,889 




183,6761 521,382 




[ 






6,151,358 


5,161,196 


1,170,680|387,928 


73,596 


64,729 


13,009,487 


3,808,216 


9,201,271 


VII. As in III 6 


5,647,622 
503,736 


4,980,011 
181,185 


1,170,680 


387,928 


61,099 
18,9i6 


62, 783 
1,946 


12,3:0,123 
705,783 


4,099,233 
193,677 


8,210,890 
512,106 












6,151,358 


5,161,196 


1,170,680 


387,928 


80,015 


64, 729 


13,015,906 


4,292,910 


8,722,996 


Vm. As in IV b 


5,647,622 
503, 736 


2,741,499 
90,595 


1,170,680 


387,928 


55, 405 
18, 191 


62, 783 
1,946 


10,065,917 
614,468 


3,624,540 
183,676 


6,441,377 
430, 792 














6,151,358 


2,832,094 


1, 170, 680 


387,928 


73, 596 


64,729 


10,680,385 


3,808,216 


6,872,169 



a Widows' annuities, £10 i 



b Widows' annuities, £26 ($127). 



It will be noted that these sums ranging from £2,041,898 ($9,936,- 
897) to £1,338,120 ($6,511,961) include the accrued hability for back 
services and the prospective liability for future services. 

Consideration of Hoav Cost Might be Met. 

The question to be decided was : How shall these liabilities be met ? 
There seems to have been no thought in the mind of Mr. Fox but that 
the whole of the liability for back services should be borne by the Gov- 
ernment, a point which does not seem to have been questioned by 
the Government. He stated it to be clearly a matter of opinion, how- 



CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 235 

ever, as to how much (if any) of the deferred liabihty should be met 
by present contributions from the Government and the deferred 
pensioners, and how much should be left to be met by the Government 
of 45 years hence; on the one hand, how much it is considered practi- 
cable or desirable to take in yearly contributions from the prospective 
pensioners to meet a portion of the liability when it accrues, and, on 
the other hand, what proportion (if any) of the balance of future 
liability should be met by the present, and what proportion should be 
left to the future Government. There was no suggestion on Mr. 
Fox's part of the other alternative that the entire liability for future 
services might be borne by the pensioners themselves, a suggestion 
that would indeed have been impracticable in view of the generous 
benefits provided under the scheme. 

In the opinion of Mr. Fox, then, there were only two ways of placing 
a government scheme of deferred pensions to its employees on a sound 
footing. The one course was to exact no contribution from the pros- 
pective pensioners and to leave the whole of the future liability to be 
met by future generations as it accrued. This would be simply a 
straight pension such as that maintained by the British Government 
for its civil servants. Stating, however, that a contributory plan is 
generally considered more desirable than a pure pension, Mr. Fox 
insisted on the importance in such a plan of reserving and accumu- 
lating the contributions to meet the contributors' portion of liability 
and not using them, in earlier years, to pay other claims which have 
not been provided for by contributions, namely, pensions to persons 
already in the service at the time of the establishment of the plan. 
He maintained that such claims should certainly be met from other 
sources as they fall in, and not discharged by using accumulations 
formed for the purpose of meeting altogether different liabilities. 
If this were done he held that the fund, assuming that it were other- 
wise conducted properly, would be found, at successive investigations, 
to be sufficient to meet that portion of the liability which it was 
intended to meet, and it would therefore be sound from any point of 
view. 

As for the liability on account of back services, which should be 
borne by the Government, Mr. Fox showed by the use of the following 
table of prospective pensions to men arising from the scheme con- 
tained in the bill how that should be kept entirely separate from the 
liability for future services to be met in part by contributions from 
the younger members. 



236 



CIVIL-SEEVICE EETIREMTENT IN NEW ZEALAND. 



PROPER TREATMENT OF LIABILITIES ARISING FROM PROSPECTIVE PENSIONS 

OF MALES. 

[From Report on Public Service Superannuation Bill, 1906, p. 13.] 



Age. 



81, 
80, 
79, 
78, 
77, 
76, 
75, 
74 
73 
72, 
71. 
70. 
69 
68. 
67. 
66. 
65. 
64. 
63. 
62. 
61. 

60 
59 
58 
57 
56 
55 
54 
53 
52 
51 
50 



Num- 
ber. 



Back 
service. 



$224 
273 
2,273 
161 
399 
1,226 
4,171 
949 
4,618 
1,572 
2,618 
2,073 
3,499 
13,183 
9,387 
15,787 
19,354 
15,658 
14,171 
13,777 
13,792 



139,065 



12,570 
23,023 
16,565 
14,200 
19,748 
19,777 
21,223 
24,586 
26,036 
32,382 
27,491 



Future 
service. 



2,073 
2,433 
2,609 
4,652 
4,725 
7,168 
9,334 
10,541 
14,789 
15,587 



$224 
273 
2,273 
161 
399 
1,226 
4,171 
949 
4,618 
1,572 
2,618 
2,073 
3,499 
13,183 
9,387 
15,787 
19,354 
15,558 
14,171 
13,777 
13,792 



139,065 



13,154 
25,096 
18,998 
16,809 
24,400 
24,502 
28,391 
33,920 
36,577 
47,171 
43,078 



Age. 



49. 
48. 
47. 
46. 
45. 
44. 
43. 
42. 
41. 
40 
39 
38 
37 
36 
35 
34 
33 
32 
31 
30 
29 
28 
27 
26 
25 
24 
23 
22 
21 
20 
19 
18 
17 
16 
15 



Num- 
ber. 



93 

85 
78 
84 
92 
85 
85 
92 
88 
92 
109 
101 
97 
107 
105 
102 
106 
107 
139 
152 
143 
107 
119 
136 
129 
132 
117 
171 
217 
225 
247 
156 
140 
74 
9 



Back 
service. 



$44,650 
35,039 
30,630 
32,601 
33,501 
26,406 
27,097 
27,554 
23,291 
26,766 
29,958 
27,131 
22,439 
26,011 
22,756 
20,191 
18,877 
17,544 
24,683 
24,143 
20,751 
12,711 
11,865 
12,536 
9,446 
7,674 
4,706 
3,577 



Future 
service. 



$27,179 
22,751 
21,106 
27,233 
30,523 
29,024 
31,895 
37,117 
34,742 
40,757 
50,174 
46,514 
46,047 
57,760 
53,259 
55,634 
60,179 
60,938 
87,242 
97,676 
98,761 
72,248 
79,903 
97,778 
94,084 
100,002 
93,792 
141,985 
181,720 
186,552 
185,156 
119,473 
114,538 
71,508 
6,823 



Total. 



$71,829 
57,790 
51,736 
59,834- 
64,024 
65,430 
58,992 
64,671 
58,033 
67,623 
80,132 
73,645 
68,486 
83,771 
76,015 
75,826 
79,056 
78,482 
111,925 
127,819 
119,512 
84,959 
91,768 
110,314 
103,530 
107,676 
98,498 
145,562 
181,720 
186,552 
185,156 
119,473 
114,538 
71,508 
6,823 



It will be seen that if the 292 men over 60 years of age all retired 
on pension immediately the sum of £28,576 ($139,065) would be 
payable during the first year on their account. "If it be deliberately 
resolved to offer these pensions," said Mr. Fox, ''it should also be 
recognized that they constitute a present liability, and they should 
be met out of the present resources of the State." He then showed 
how, in each succeeding year, it would also be necessary to similarly 
provide the pensions which would become due on account of back 
service to the survivors of the present members shown in the table as 
living at each age under 60 down to age 22 when the liability for back 
service would vanish. The outgo for pensions on back service would, 
of course, diminish as the pensioners died off. 

Mr. Fox showed also, from the above table, how members of the 
service who had served some time before the adoption of the proposed 
scheme would ultimately retire on pensions provided partly by the 
Government and partly by their own contributions. The seventy- 
five men shown as now aged 50 would, if they survived and remained 
ten years, be entitled to £3,203 ($15,587) a year for their future ten 
years' service, in addition to the £5,649 ($27,491) for back service. 
These men would be contributing 10 per cent of their salaries during 
the next ten years, whereas the full rate necessary would be approxi- 



CIVIL-SEE VICE RETIREMENT IN NEW ZEALAND. 237 

mately 15 per cent. Thus, two-thirds of their future-service pensions 
would have been purchased by their own contributions, if those con- 
tributions had been safeguarded as advocated above, leaving the 
remaining one-third of the survivors' pensions to be defrayed by the 
Government, in the same way as the whole of the back-service 
pensions. 

The full rates of contribution necessary at various ages having 
been ascertained, it would be for the Government to say what pro- 
portion of these rates should be required from the contributors to 
the fund. The sum so contributed should be used only for the 
purpose of meeting the portions of the current and future liabili- 
ties for which they were intended. That part of the contributions 
intended to meet a portion of the future liability should be accumu- 
lated at interest and not used for any other purpose. The remainder 
of the current and future liabilities not so provided for by the contri- 
butions should be discharged year by year, as they accrue, by the 
Government of the day, and no portion whatever of the contributed 
fund should be used for that purpose. An actuarial investigation 
of the fund should be made triennially (or quinquennially) in order 
to test the sufficiency of the contributed fund and to ascertain the 
probable extent of the present accruing liability which will have to 
be met by the Government during the succeeding three (or five) 
years. 

The full contributions required at different ages to furnish the bene- 
fits given in the bill were computed to be as follows: ('^) 

At age 18 8.6 per cent of salary. 

At age 23 9.3 per cent of salary. 

At age 28 9.8 per cent of salary. 

At age 33 10.4 per cent of salary. 

At age 38 11.1 per cent of salary. 

At age 43 12.1 per cent of salary. 

At age 48 13.6 per cent of salary. 

At age 53 15.6 per cent of salary. 

At age 58 17.9 per cent of salary. 

The contributions in the bill were — 

At age 40 and under 5.0 per cent of salary. 

At age 41 6.0 per cent of salary. 

At age 46 7.0 per cent of salary. 

At age 51 and over 10.0 per cent of salary. 

The difference between the amounts contributed under the bill 
and the amounts required to furnish the proposed benefits would 
have to be contributed by the Government. 

The rates of contribution determined on show that New Zealand 
profited in that respect from the disastrous experience of New South 
Wales, where the flat-rate contribution of 4 per cent of salary had been 

a Report on Public Service Superannuation Bill, 1906, p. 14. 



238 CIVIL-SEEVICE EETIREMENT IN NEW ZEALAND. 

found inadequate for the payment of benefits. All of the actuaries 
who examined into the state and sufficiency of the New South Wales 
fund had commented on the inadequacy of the contributions and one 
of them had pointed out, with great emphasis, the fact that the rate 
of contribution must depend necessarily on the age of entrance into 
the service, a fundamental principle carefully observed in New 
Zealand's bill. 

Recommendation of Actuary of How Cost Should be Met. 

Mr. Fox showed that there are several ways in which the liability 
incurred in starting the proposed scheme might be met. The capital 
sum of £1,816,719 ($8,841,063) might be paid in immediately, but 
this course would not be practicable. A yearly payment of £72,669 
($353,643), which is the interest on the capital sum at 4 per cent, 
might be made, but this course would require much larger initial 
payments than are necessary. What Mr. Fox proposed therefore 
was this : The liability for back services to be met by the Govern- 
ment year by year, as it accrues ; liability for future services to be 
met by demanding from the members such proportion as might be 
thought proper of the full contributions necessary to provide the 
benefits, and by accumulating these to pay a corresponding propor- 
tion of the future liabilities as they fall due, and the Government of 
the day to pay, year by year, as they accrue, the remaining future 
liabilities not provided for by members' contributions. In order to 
give effect to this arrangement he repeated that it would be necessary 
to have a periodical investigation of the fund to ascertain the amounts 
which will be required from time to time to meet the balance of 
current outgo without trenching on the fund contributed by the 
civil employees. Taking everything into consideration, Mr. Fox 
stated that, in his opinion, a yearly subsidy of £30,000 ($145,995) 
would be sufficient for the first three years, but that ultimately 
£50,000 or £60,000 ($243,325 or $291,990) would probably be 
required. It was his desire to ascertain in what way the fund could 
be most conveniently made actuarially sound with a minimum 
strain on the public purse by way of financial assistance. He con- 
sidered that that would be done most effectively by making the 
subsidy as small as possible at first, and subject to a comparatively 
small and practically regular increase so long as it should be neces- 
sary. At each successive triennial investigation the amount re- 
quired, during the following period, to meet the balance of current 
outgo could be determined with greater accuracy. Mr. Fox said: 

In advising as to the probable outgo of the first three years of the 
scheme I am in a very different position from that I shall occupy at 



CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 239 

the first triennial investigation in regard to the second three years, 
because there is at present no experience whatever of members 
respecting retirements and withdrawals. The bulk of the outgo 
will result from the payment of pensions to those entitled to retire 
immediately. If they all went on the fund at the outset the claims 
on their account would amount to approximately £27,800 ($135,289) 
in the first year, £26,600 ($129,449) in the second, and £25,300 
($123,122) in the third year — this outgo decreasing yearly. On the 
other hand, the pensions which will become due to those now aged 
57, 58, and 59 (or 47, 48, and 49 in the case of women), who may 
become pensioners during the triennium, though small at first, will 
be of an increasing nature, and the contributions of these members 
will not have had time to accumulate to an appreciable amount. 
Taking everything into consideration, I think that a yearly subsidy 
of £30,000 ($145,995) will be sufiicient for the first three years. As 
I have said, however, I am quite unable to estimate the relief to the 
fund which will be experienced through members abstaining from 
retiring immediately they have the right to do so, nor am I able to 
estimate the strain upon the fund which will result from members 
under the pension-ages being retired on pension owing to ill health. 
This disadvantage will apply with less force at each successive 
triennial investigation in consequence of the accumulation of sta- 
tistics of the actual experience of members in these respects. But, 
as I have said, I think a yearly grant of £30,000 ($145,995) will 
supply all that will be required during the first three years. ('^) 

Amendments to the Proposed Bill Recommended by Actuary. 

As the outcome of his investigation Mr. Fox recommended there- 
fore that the bill be adopted with the following amendments: 

(1) That the interest credited to "the contributed fund" shall not 
be at a lower rate than 4 per cent. 

(2) That the widows' annuities shall be increased from £18 ($88) 
to £26 ($127). 

(3) That the annuities shall be payable to the widows and chil- 
dren of pensioners as well as to the widows and children of members 
who die while in the service. 

(4) That a yearly grant of £30,000 ($145,995) shall be made during 
the first three years. 

(5) That this yearly grant shall be increased (or decreased) from 
time to time in the manner explained heretofore, in order to meet 
the yearly accruing liabilit}'' unprovided for by members' contribu- 
tions. 

(6) That, in order to ascertain the necessary periodical grants a 
triennial actuarial investigation of the fund shall be made, the tri- 
ennial report to state what will be the probable sum required for the 
ensuing three years. 

(7) There will be no necessity to retain the present provision for 
the guarantee of any deficiency in the fund.(^) 

o Report on Public Service Superannuation Bill, 1906, p. 15. 
6 Idem, p. 16. 



240 civil-service retirement in new zealand. 

Advantages of a Superannuation System. 

In closing his report Mr. Fox submitted his reasons for recom- 
mending superannuation measures generaUy and this scheme in par- 
ticular. Said he: 

The advantages arising from well-considered superannuation 
schemes are so evident that many large employers of clerical and 
other labor have recognized their importance by adopting schemes 
of the kind in practice, and the tendency of the present day appears 
to be in the direction of extending the system. It has been pointed 
out by others that a sentimental consideration for the employee is 
not the sole motive for expenditure of this kind by corporations and 
bodies of men engaged in the profitable investment of capital. They 
are certainly guided by business principles and realize that well- 
considered expenditure in this direction is justified by the ultimate 
results. All employees are compelled to partially provide for their 
future, thus relieving their employer of the assistance he would be 
practically forced to extend in necessitous cases. But perhaps the 
chief advantages to the employer are that the employees as a body 
are more firmly attached to his service and he is enabled to exercise 
a freer hand in retiring aged employees at high salaries and promoting 
younger men at lower salaries. All interests are best served in the 
end by placing on the pension list old servants who are past their 
work and replacing them by younger ones who are in their prime. 

I respectfully submit that the following are sound reasons why the 
scheme I am advocating should be accepted in its entirety : 

(1) On the one hand, it will give full effect to the wishes of the civil 
service. 

(2) On the other hand, it will impose the minimum o/ liability upon 
the Government to begin with, which liability will not be erratically 
subject to sudden large increases in the future. The increase in the 
cost of superannuation itself will be very gradual, being for many years 
probably between £1,000 and £2,000 ($4,867 and S9,733) per annum, 
and when the present outlay for compensation, gratuities, and pen- 
sions is taken into account I believe the yearly increase in the total 
Government assistance to civil servants will be still further reduced. 
Such a gradual increase will cause no undue strain to fall on the future 
increasing resources of the country. 

(3) The fund will he always sound if otherwise properly conducted. 
When the unsatisfactory condition of some large government funds 
of this kind in other parts of the world is considered, it will be recog- 
nized that this is a matter of the first importance; and I say, without 
any reservation, that the fund may be subjected at any time to the 
most exacting actuarial investigation, and, if no departure has been 
made from the principles I have laid down, it will always pass the 
test satisfactorily, thereby adding one more to the many large con- 
cerns of which the Dominion of New Zealand has cause to be proud. ('*) 

Superannuation Bill of 1907 Proposed. 

Following this actuarial investigation, the bill was redrafted 
as the "Public Service Superannuation Bill, 1907." On November 

«» Report on Public Service Superannuation Bill, 1906, p. 17. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 241 

12, 1907, Mr. Fox submitted a brief report on this second bill, which 
he found very rnuch stronger from an actuarial viewpoint than the 
one of the previous year. The chief improvements were ones recom- 
mended by Mr. Fox in his previous report, namely, a provision for a 
yearly subsidy of £20,000 ($97,330) (though he had asked for £30,000) 
($145,995); a provision for a triennal investigation and suitable form 
of actuarial report thereon; and a provision making widows' and 
orphans' annuities payable in the case of contributors dying after 
(as well as before) becoming superannuated, the balance of compensa- 
tion not received by way of pension being included in the optional 
capital payment. Two other important changes were made in the 
bill. The scale of contributions between ages 30 and 50 was increased 
from 5, 5, 6, and 7 per cent to 6, 7, 8, and 9 per cent. The pensions 
were based on the average salary of the last three years instead of on 
the final salary. 

In one respect this second bill, as first drafted, was a disappoint- 
ment to the actuary, and he accordingly made a protest in his report, 
which proved effectual, for the undesirable clause in the bill was 
changed to correspond with his recommendation. He had strongly 
advocated, from the first, that the section guaranteeing any future 
deficiency in the fund be omitted altogether and a section inserted 
making provision for the annual appropriation of £30,000 ($145,995), 
and such further sums as the triennial investigation showed were 
necessary. He stated that he did not insist on the sum of £30,000 
($145,995) as absolutely necessary, that £20,000 ($97,330) would do 
as well if provision were made for triennial adjustment of the amount, 
should it prove to be insufficient. "I inserted £30,000 ($145,995)," 
he said, " because, after strict inquiry, I considered that sum would 
be sufficient, while I am not sure that a smaller sum would." 

In conclusion, he emphasized the fact that the scheme would 
have two opposite effects. While it would require an initial annual 
subsidy of £20,000 to £30,000 ($97,330 to $145,995), subject to an 
annual increase for some years, it would also have the effect of dimin- 
ishing expenditures in other directions. There had been paid out 
of the Consohdated Fund, the year before, over £8,000 ($38,932) as 
gratuities, an outlay that, under the terms of the bill, would cease 
immediately. There was also paid out over £8,000 ($38,932) as 
compensation, an expense that would cease to accrue when the act 
came into operation, and in twenty years or so would practically 
cease. Finally, there was also paid during the previous year over 
£26,000 ($126,529) as pensions, and in about twenty years this 
outgo would also cease. There was thus £42,157 ($205,157)" paid 
from the Consolidated Fund the year before as assistance to civil 
servants by way of gratuities, compensation, and pensions, and as 

« See page 227. 
35885— S. Doc. 290, 61-2 16* 



242 CIVIL-SEEVICE KETIREMENT IN NEW ZEALAND. 

this outgo would diminish, under the terms of the bill, until it prac- 
tically ceased altogether in about twenty years, while the expendi- 
ture under the bill was increasing at the same time, Mr. Fox thought it 
it evident that the practical consideration of importance was the total 
annual amount required from the consolidated fund for all these pur- 
poses taken together. He stated that he thought it highly probable 
that the annual decrease in the present outgo would practically balance 
the annual increase in the subsidy for the next twenty years. 

Actuary Made Only Estimate of Cost, Instead of Calculation. 

It is of interest in considering the probable cost to the New Zealand 
Government of establishing and maintaining the proposed superan- 
nuation fund to note that after the first year the amounts mentioned 
by the actuary are all estimates and not calculations. The sum of 
money required the first year to retire all those in the service who 
had reached the age of retirement was calculated to be £28,576 
($139,065). It would have been perfectly possible, having all the 
necessary data as to the age, length of service, and amount of salary 
of all the 5,593 members of the civil service, to have carried out the 
calculation to the end of the period when all present members of the 
service would be dead, and thus have shown with precision the total 
maximum cost of the annuities for back services to all present members 
of the service. It is to be regretted that the calculations were not car- 
ried out to the end, so that the possible maximum cost might be 
known with definiteness. The actual cost would, of course, be less 
than such a maximum cost, since no allowance could have been 
made for resignations in the absence of data on the subject. The 
calculation of a possible maximum cost would, however, be much 
more satisfactory than the most conservative estimate, acknowledged 
to be merely an estimate. At the hearings of the Public Accounts 
Committee on November 13, 1907, Mr. Fox was examined on the 
matter of cost as follows: 

What is the maximum amount which a scheme like this will in- 
volve the colony in ? — I have explained on previous occasions when I 
have been here that I have an objection to saying that I can give 
correct estimates for a long distance ahead; but I can form some 
idea, and I will give you that idea. Whatever is the initial subsidy 
required, that will have to go on increasing for a large number of 
years. I have been looking lately at the composite effect of all the 
payments for pensions, gratuities, and compensation, totaling 
£42,000 ($204,393) at present; and the £30,000 ($145,995) added on 
to that for the first year would make £72,000 ($350,388) to come out 
of the government purse. It will never, I consider, be more than 
that. In the course of twenty years' time the £42,000 ($204,393) 
will have vanished altogether, roughly speaking. At that time the 
total yearly outgo will be very much less than the first year's £72,000 
($350,388)— very much less; but the £30,000 ($145,995) will have 
increased. It may have increased to £55,000 or £60,000 ($267,658 
or $291,990). That will take the place of everything included in the 



CIVIL-SEEVICE EETIKEMENT IN NEW ZEALAND. 243 

present £72,000 (S350,388). After the first year £7,000 or £8,000 
($34,066 or $38,932) paid in gratuities will vanish altogether from 
the total, and so the £72,000 ($350,388) will not all be wanted by 
that much. Taking the £42,000 ($204,393) that is being paid at 
the present time per year, I consider that possibly not more than 
£10,000 ($48,665) per annum over that sum will be wanted for the 
whole thing eventually. That is about £50,000 ($243,325). I am 
speaking of fifty years' ahead or more. The amount will have 
increased to more than £50,000 ($243,325) previous to that, but 
will be likely to come down to, say, £50,000 ($243,325) as a perma- 
nency. That will take the place of everything — there will be no 
other outgo. 

For how long will the amount to be paid under the bill keep on 
increasing? — For a good many years. 

Can you give us any idea how long? What I want to get at is 
what the colony is being committed to? — I will still take the whole 
lot together— the £42,000 ($204,393) that is being paid now and the 
£30,000 ($145,995) proposed to be paid out, making £72,000 ($350,388) 
altogether. I estimate that in about thirty-five years' time the total 
amount will be about the same as that. It will be all on account 
of the pension fund then — there will be no other outlay. It will 
certainly have come down in eighty years' time to its final level — 
say £50,000 ($243,325). («) 

It can not be stated whether this uncertainty as to the ultimate 
cost of the enterprise in which the Government was embarked by 
the passage of the superannuation act left any feeling of uneasiness 
in the minds of those who voted for it. At a meeting held to com- 
memorate the passing of the act. Sir Joseph Ward, the Premier, is 
reported by the New Zealand Times of December 19, 1907, to have 
reminded the people of "this potent fact, that in addition to the 
£20,000 ($97,330) a year which the country was now contributing, 
at any time, if that amount was found to be insufficient, the country 
was bound by act of Parliament to provide the increase, whatever 
that might be. They knew from the actuary that the amount in 
time must be increased to £50,000 or £60,000 ($243,325 or $291,990) 
a year. He believed that without a contented service the country 
did not get the full value in return. It was proper that the country 
should pay its servants well so as to secure attachment to the serv- 
ice, and thus retain its employees. He believed they would get 
that attachment as a result of this act." Another speaker at this 
same meeting, Mr. G. Allport, chairman of the superannuation com- 
mittee, denied that the civil servants were paying for much of what 
they got, and said that "they were not going to pay a sufficient amount, 
by a long way, to provide the pensions they would receive, and they 
ought to be grateful to the Government and the country for having 
agreed to contribute in the manner which was done, enabling a sub- 
stantial pension to be paid to each member of the service upon his 
retirement." 

« Report on Public Service Superannuation Bill. 1906. Minutes of evidence, p. 4. 



244 CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 

The bill was passed November 25 and became a law with the fol- 
lowing provision in reference to a subsidy: 

"In the month of January in every year the minister of finance 
shall pay into the fund and out of the Consolidated Fund, without 
further appropriation than this act, the sum of twenty thousand 
pounds (S97,330), together with such further amount (if any) as is 
deemed by the governor in council, in accordance with the aforesaid 
report of the actuary to be required to meet the charges on the fund 
during the ensuing year." 

Main Features of the Law Enacted. 

The main features of the law are then as follows: All permanent 
civil servants and all temporary clerks who had served the Gov- 
ernment for more than five years continuously are included in the 
pubhc service superannuation scheme, if not provided for by the 
police, railway, or teachers' funds. They were given the oppor- 
tunity for six months of joining the fund. An^^one who did not elect 
to become a contributor within the prescribed six months is not 
allowed to do so at a future time, except on payment of a sum equal 
to the total contributions he would have paid had he elected to be- 
come a contributor in the beginning, plus five per cent compound 
interest. Anyone who joins the fund has the option of continuing 
the hfe insurance policy he had been required to take out under pre- 
vious legislation, or of surrendering it. In case he elects not to join 
the superannuation fund, he is required to continue the policy. All 
new entrants to the public service are compelled to join the fund. 
The amount of their contributions is determined by their age on 
entering the service, ranging from 5 to 10 per cent of their salaries. 
Pensions are claimable by men at the age of 65 (60 was the age origi- 
nally chosen, but the change to 65 was made in committee at the last 
moment) or after forty years of service, and by women at the age of 
55 or after thirty years of service. There is no compulsory age of 
retirement. The amount of each pension is as many sixtieths of the 
average salary during the last three years before retirement as the 
pensioner has been years in the service, but it will, in no case, exceed 
two-thirds of this terminal salary. The contributor may elect on 
retirement to take the amount of his contributions, without interest, 
instead of this retiring allowance. In case of medical unfitness, 
retirement is allowed on the usual pension of ^o^th for each year of 
service. The medical certificate of two approved practitioners is re- 
quired to satisfy the board that the employee has become permanently 
unable to perform his duties by reason of mental or bodily infirmity 
not caused by irregular or intemperate habits. An ordinary medical 
examination is required on entrance into the service. In case of the 
death of a male contributor, whether before or after becoming entitled 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND, 245 

to a retiring allowance, an annuity of £18 ($88) a year is granted to 
his widow, or she may choose instead the return of the deceased's 
contributions. Five shillings ($1.22) a week is granted to each child 
under 14 years of age, whether the deceased contributor is a male or 
a female parent. Where there is neither widow nor child the differ- 
ence between the contributions paid by the deceased and the pension 
received by him or her is paid to his or her legal representatives. In 
case of voluntary withdrawal or in case of dismissal for any cause, 
the contributor is entitled to a refund of the whole amount actually 
contributed by him to the fund, but without interest. The fund 
established under this act consists of the contributions of the em- 
ployees, the subsidy from the Government, and the interest accruing 
from the investment of the fund. All moneys belonging to the fund 
are paid to the public trustee, who invests them in freehold securities 
at current rates of interest. The average rate of interest yielded by 
such investments is reported (by a member of the board) to be about 
5 per cent. The fund is administered by a board called the Public 
Service Superannuation Board consisting of ten members, of whom 
five are appointed by the governor and five elected by the contribu- 
tors. This board has the services of one secretary and two clerks. 
The cost of administration is reported to be nil except for the sum of 
£400 ($1,947) per annum paid to the secretary of the board as salary. 

''The Public Service Superannuation Act, 1907," accordingly 
came into operation January 1, 1908. Immediately applications to 
become contributors to the fund commenced to come in, and to an 
extent that showed at once that the act was a popular measure and 
would prove most successful in its operation. Up to the end of 
June, 1908, that is, six months after the act became effective, no 
fewer than 7,028 members of the public service voluntarily became 
contributors. This included the majority of the 5,593 persons 
enumerated in the census of the departments made by the actuary and 
also officials who, prior to the passing of the Classification Act of 1907, 
were only temporarily employed but who became permanent officers 
by the passage of that act. 

The act provides that, until an official becomes a contributor to 
the fund, he is subject to the provisions of the previous civil service 
acts relating to insurance and deductions from salary. On becoming 
a contributor, the official is entitled at his option — 

(1) To keep his insurance policy alive independently of the 
superannuation act; 

(2) To surrender the policy and have its surrender value paid to 
the public trustee to be invested independently of the fund, and to 
be paid to him, together with all interests on it, when he retires or 
to his personal representatives on his death; or, 

(3) To surrender the policy and receive the equivalent of its 
surrender value in the form of a paid-up policy. 



246 CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 

Since the provision for widows and dependents under the new super- 
annuation scheme is not on such a high scale as to make insurance no 
longer necessary,- it is the expectation of the government insurance 
commissioner that large numbers of civil servants whose own old age 
is well provided for by the superannuation fund will see the wisdom 
of making provision for their families by assurance on their lives, for, 
which the department offers special facilities. Even though compul- 
sory insurance was imposed, under the Act of 1893, only on new 
entrants under forty years of age, a large proportion of the support 
given to the Insurance Department came from voluntary action on 
the part of government employees in all branches and grades of the 
service, including teachers, policemen, railway men, and civil serv- 
ants. The following statement, taken from a ''Brief Survey of New 
Zealand's State Life Insurance," prepared for distribution at the 
Franco-British Exposition in London, 1908, shows that government 
employees contributed in premiums upwards of £44,000 ($214,126) a 
year out of a total premium income of over £320,000 ($1,557,280). 
Of this less than 13 per cent was of the nature of compulsory insur- 
ance, as shown by the following statement: 

Yearly premiums. 

Railways $74, 457 

Posts and Telegraphs 37, 959 

Education 27, 252 

Police Force 9, 733 

Other Departments (per Treasury) 40, 392 

Voluntary assurance premiums 189, 793 

Compulsory assurance premiums (under Civil Service Insurance Act) 28, 226 

218, 019 

Operation of Law, First Six Months. 

The Public Service Superannuation Board's report for the first six 
months of the law's operation shows, however, that considerable diffi- 
culty was experienced at first, owing to the fact that the temporary 
officers who had become permanent were under the impression that 
they were exempt from the necessity enjoined on all officers joining 
the service since 1893 of having to insure their lives, and they con- 
sidered that the option given by the act to all those newly made per- 
manent of having the privilege of electing within six months to 
become contributors, exempted them in the meantime from having to 
insure under the provisions of ''The Civil Service Insurance Act, 
1893," should they decide not to become contributors until the six 
months' option had expired. This was, however, overcome, and 
with a few exceptions they undertook the responsibihties of other 
public officers and joined the fund. 

This report states that "the popularity of the act has been dis- 
tinctly proved by the very large number of officials who have volun- 
tarily joined as contributors. There are cases where some who have 



CIVIL-SERVICE EETIREMEl<rT IN NEW ZEALAND. 247 

become permanent officers under the Classification Act, and who had 
to join as contributors or insure, demurred at having to accept the 
responsibihties of the position, and considered it somewhat of a hard- 
ship that, being already insured in the Government Insurance OSice 
or other private companies, they should have their small salaries 
further taxed by having to contribute to the fund or take out a policy 
under "The Civil Service Insurance Act, 1893;" but, as against the 
few who felt this hardship, a large majority of the public service felt 
that a very great privilege had been accorded them under the liberal 
provisions of the act. Many of these had given years of their life to 
the service of the Dominion as temporary officials, and had no hope 
or prospect of any retiring allowance when their time came to leave 
the service, and they were gratified to find that under this act their 
past service would be taken into account when they retired, and that 
they would be accorded the same privileges as regards a retiring allow- 
ance as those permanent officers with whom they had worked for 
many years." 

The following statement for the six months ending June 30, 1908, 
was made:(") 

Number of contributors 7, 028 

Annual contributions $267, 658 

Contribution from the Consolidated Fund $97, 330 

Retiring allowances granted 63 

Representing an annual payment of $26, 547. 43 

Number of officials retired as medically unfit 9 

Representing an annual payment of $3, 931. 69 

Number of contributors who have died during the six months 9 

Annual pension to five widows and seven children 



The total allowances granted, it will be seen, amount to £6,444 lid. 
($31,359.95). The largest pension paid is £339 3s. 4d. ($1,650.55) and 
the smallest £12 9s. 9d. ($60.77). 

Public Attitude in Regard to Law. 

The superannuation scheme seems to be satisfactory to the New 
Zealand public as well as to the civil employees. Press comments 
at the time of its adoption took the form of congratulation rather 
than of any criticism of the extra charge laid on the country. Sym- 
pathetic interest was also shown by Australian and English papers. 
"While the superannuation scheme undoubtedly imposes a heavy 
tax on the Consolidated Revenue, it at the same time relieves it from 
another heavy outlay, and the additional cost of superannuation is 
not so great as might at first be supposed," was the comment of a 
Melbourne paper. (^) This cost was denominated by another journal 
as a "very moderate pull on the Dominion's exchequer." (*=) "The 
annual cost of the scheme, although not yet ascertained, will, to some 

a Report of Public Service Superannuation Board, June 30, 1908. 

6 Australasian Insurance and Banking Record, Melbourne, February 20, 1908. 

c New Zealand Times, November 21, 1907. 



248 CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 

extent, be offset by a direct saving in other directions, while the 
indirect saving through securing a more efficient public service 
should be very material," was the view expressed by a Sydney 
paper. C*^) The comment of a London insurance paper was ''We 
believe there is here outlined an admirable scheme of superannu- 
ation, the administration of which will be watched with interest in 
many quarters of the world. We content ourselves in the mean- 
time with observing that the indications are that it will work out to 
the benefit of deserving State servants, whose habits of thrift and 
self-help it will stimulate, without imposing an undue burden upon 
the people of the Dominion." C*) 

The principle involved in the sharp line of demarcation drawn by 
the actuary between the payment of allowances on services rendered 
prior to the adoption of the plan and the payment of allowances on 
services rendered after the adoption of the plan was clearly under- 
stood and discussed in some of the editorial comments. Speaking of 
the difficulties which presented themselves in the way of an apph- 
cation of the pension idea which would be at once financially sound 
and fair in its operation, the London Insurance Record said : 

As the premier pointed out in the course of a debate on the bill, 
the civil service in New Zealand is old compared with the age of the 
country, and it was because of that fact that there was a supreme 
difficulty on the part of the Government in putting on the statute 
book a superannuation act forty years after some of the men had 
joined the service, the incidence of which was light in its burden 
upon members of the service. If the scheme had been commenced 
forty years ago a universal contribution rate of 3 or 4 per cent of 
salary for every one in the service would have sufficed. But the 
country has grown up, the old men in the service are leaving, and 
those who remain must fill the void. 

More clearly still the Sydney "Review" states the problem and its 
solution in the separation of accrued from future liabilities: 

The pensions are liberal, and a scheme of this description, applying 
to present officers, many of whom can retire immediately on very 
fair pensions, must of necessity entail a heavy liability on the part 
of any government. The favorite method, however (vide New 
South Wales and Cape Colony civil service schemes), has been to 
ignore this liability and to go on paying the pensions of the old men 
who retire, out of the contributions of the young men who join the 
scheme, until the funds are exhausted, and the outlay for pensions 
exceeds the income from contributions. The actuary, Mr. Morris 
Fox, has made the recklessness of this method quite apparent in his 
comprehensive reports, and the Government has agreed to start the 
scheme with an annual payment of £20,000 ($97,330), the subsidy 
to be increased by such further amounts as will be sufficient to pay 
the difference between the pensions falling due and the amount of 

o Sydney Review, February 29, 1908. 

b London Inaurance Record, February 21, 1908. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 249 

pension the contributions would have actually purchased. (For 
example, if an old servant retires on £400 ($1,947) a year while his 
contributions would only have purchased £10 ($49), the fund pays 
the £10 ($49), and the Government finds the balance, £390 ($1,898) 
per annum. The contributions of the younger members will therefor 
be accumulated at compound interest to help provide their pensions 
when they become payable, and will not be absorbed by meeting 
more immediate liabilities; the cost of providing current pensions 
being borne by the present taxpayers, and not by posterity. If the 
scheme were commenced without contributions, the pensions falling 
due would be the measure of the Government's annual liability, 
and by meeting this liability (or rather the portion not paid for by 
the contributor) at once. Sir Joseph Ward has made a fair division of 
the annual outlay between present and future taxpayers. It is this 
simple, but ingenious financial arrangement which differentiates the 
scheme from all others with which we are familiar, and the result is 
three-fold; the solvency of the fund is secured, the present strain 
on the exchequer is the minimum compatible with soundness, and 
only a fair share of the liability is transferred to posterity. 

TEACHERS', POLICE, AND GOVERNMENT RAILWAYS 
SUPERANNUATION ACTS CONSOLIDATED. 

It is generally felt that it would be desirable to harmonize the 
details of all the plans so that the provisions for civil servants, 
teachers, policemen, and railway men might all be included in one 
comprehensive law. A long step toward that end was taken last 
year when the four acts of consolidation were passed: 

(1) "The Public Service Classification and Superannuation Act, 
1908," which is a consolidation of the "Public Service Classification 
Act, 1907," and the "Public Service Superannuation Act, 1907," 
with the exception of certain omitted sections. 

(2) "The Public Service Classification and Superannuation Amend- 
ment, 1908," which is to be read with and deemed part of the above 
act, being merely an amendment to include the teachers under the 
general terms of classification and superannuation provided for 
members of the "public service." 

(3) "The Police Force Act, 1908," which is a consolidation of 
"The Police Force Act, 1886," "The Police Provident Fund Act, 
1899," and those sections of the "Public Service Superannuation 
Act, 1907," which relate to the rate of contribution paid by con- 
tributors to the Fund. 

(4) "The Government Railways Act, 1908," which is a consohda- 
tion of various improvement acts including "The Government 
Railways Superannuation Fund Act, 1902," "The Government Rail- 
ways Superannuation Fund Contributions Act, 1903," and the 
sections in the "Public Service Superannuation Act, 1907," relating 
to the rate of contributions to be paid to the Fund by contributors 
entering the service at various ages. 



250 



CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. 



The result of these various consolidation acts is that contribu- 
tion to the superannuation fund is compulsory now for new entrants 
in every branch of the government service, and contributions are 
fixed at uniform rates for all branches. The rates of contribution 
are those adopted for the public service and the teachers, which 
were notably higher than those formerly imposed on the railways 
members, being 5, 6, 7, 8, 9, and 10 per cent for various ages as 
against 3, 4, 5, 6, 7, and 10 per cent for the same ages. 

The four laws now read uniformly as regards the rates of contri- 
bution to be paid by a contributor, as follows: 

(a) Five per cent if his age does not exceed 30 years at the time 
when the first contribution becomes payable; 

(6) Six per cent if his age then exceeds 30 years but does not 
exceed 35 years; 

(c) Seven per cent if his age then exceeds 35 years but does not 
exceed 40 years; 

id) Eight per cent if his age then exceeds 40 years but does not 
exceed 45 years; 

(e) Nine per cent if his age then exceeds 45 years but does not 
exceed 50 years; and 

(/) Ten per cent if his age then exceeds 50 years. 

The consolidation of the various acts resulted also in the harmo- 
nization of some slight variations in the benefits offered. The most 
striking discrepancy was in the case of the teachers' plan, in which 
back service counted for only one-half in determining the amount 
of the pension, a provision that seems to have caused considerable 
discontent. "The Public Service Classification and Superannuation 
Amendment, 1908," corrected this discrimination, giving teachers 
full credit for back service and giving them pensions on the same 
basis as the public servants. A comparison of the benefits under 
the various New Zealand government superannuation schemes now 
in force is as follows: 

COMPARISON OF BENEFITS UNDER THE VARIOUS GOVERNMENT SUPERANNUATION 
SCHEMES IN FORCE IN NEW ZEALAND. 



Benefit. 


Public Service Fund and 
Teachers' Fund. 


Railway Fimd. 


Police Fund. 


I. Pensions on ordinary 








retirement, at or over 








pension age: 








(1) Retiring age 


Age 05 or after 40 years' 


Age CO or after 40 years' 


Age 60 and not less than 




service, or age 60 with 


service, or 35 years' 


25 years' service. 




approval of minister. 


service with permis- 
sion of board. 




(2) Amount of pen- 


n'ath of average salary 


B^uth of final salary (or 


Same as in railway fund. 


sion. 


for last 3 years, for 


average of last 7 years. 






each year of service. 


if increased in last 5 
years) for each year of 
service. 




(3) Pension limit 


Jg or 5 of average salary 


J8 or § of final salary (as 


§g or % of final salary. 




(as above). 


above). 





CIVIL-SEKVICE EETIREMENT IN NEW ZEALAND. 



251 



COMPAEISON OF BENEFITS UNDER THE VARIOUS GOVERNMENT SUPERANNUATION 
SCHEMES IN FORCE IN NEW ZEALAND— Continued. 



Benefit. 



Public Service Fund and 
Teachers' Fund. 



Railway Fund. 



Police Fund. 



II. Benefits on retire- 
ment before pension 
age: 
Medically unfit 



II. Benefits on death of 
pensioner. 



IV. Benefit on death of 
contributor while 
in service: 

( 1) If no widow or 

children. 

(2) If widow or chil- 

dren. 



V. Benefits on voluntary 

withdrawal or dis- 
missal (not for mis- 
conduct) before pen- 
sion age. 

VI. Benefits on dismissal 

for misconduct. 



^oth of average salary 
for last 3 years, for 
each year of service. 
(In teachers' fund only 
after 15 years' service. ) 



(a) If no widow or chil- 
dren: Diflerence be- 
tween contributions 
paid and pensions re- 
ceived. 

(6) If a widow: An an- 
nuity of £18 ($88) dur- 
ing widowhood, or 
option of diflerence 
between contributions 
paid and pensions re- 
ceived. 

(c) If children: A weekly 
payment of 5s. ($1.22) 
for each child until 14 
years of age. 



Same as above . 
do. 



Return of contributions 

withjout interest. 



Same as above. 



g^th of final salary (or 
average of last 7 years, 
if increased in last 5 
years) for each year of 
service. 



Difference between con- 
tributions paid and 
pension received, to- 
gether with compen- 
sation (1887, Act). 



Same as above. 



An annuity of £18 ($88) 
during widowh o o d , 
and 5s. ($1.22) per 
week for each child 
until 14 years of age or 
option of return of 
such portion of contri- 
butions as the Board 
thinks proper. 



Return of contributions 
without interest, to- 
gether with compen- 
sation (1887, Act). 

Return of contributions 
without interest. 



Under 5 years: Return of 
contributions. 

5 to 15 years: 1 month's 
pay for each year's 
service up to 12. 

Over 15 years: The usual 
pension. 

If injured on duty. Board 
may grant pension up 
to limit. 

Diflerence between con- 
tributions . paid and 
pension received (at 
discretion of Board). 



No benefit. 

If from injuries on duty: 
An annuity of £ 18 ($88) 
during wdowhood, 
and 5s. ($1.22) per week 
for each child until 14 
years of age. 

If not from injuries on 
duty: Such sum as the 
Board thinks proper 
up to amount of contri- 
butions. 

Under 10 years: Nothing, 

After 10 years, and not 
over 25: Return of 
three-fourths of contri- 
butions. 

Return of not more than 
one-half of contribu- 
tions. 



Compared with 4,963 men and 630 women in the pubhc service in 
1907, there were that same year 815 men and 6 women in the poHce 
scheme, and 8,265 men in the railway scheme, and in 1908 there were 
1,436 men and 1,446 women in the teachers' plan. 

Report on the Teachers' Fund. 

The second report of the board constituted by "The Teachers' 
Superannuation Act, 1905," shows that the number of contributors 
to the Teachers' Superannuation Fund on March 31, 1908, was 2,882. 
The aggregate annual salaries of the contributors to the fund was 
£446,607 (S2, 173, 413) and the actual amount of contributions received 
during the year was £32,676 ($159,018). Thirty-eight new retiring 
allowances were granted during the year to contributors, 6 allowances 



252 CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 

to widows and orphans, which added to 94 already existing made a 
total of 138 allowances granted, but as 8 of them were discontinued 
during the year only 130 existed at the end of the year. These 
amounted to £6,062 10s. lid. ($29,503). 

Of the number of contributors who retired during the year 24 (in- 
cluding 4 "medically unfit" cases) were granted annual allowances 
aggregating £1,389 10s. ($6,762). Six widows and eight children, 
the representatives of six contributors who died, were granted annual 
allowances amounting to £212 ($1,032) and a refund of contributions 
of £132 9s. 9d. ($644.75). The total number of retired contributors 
on account of whom annual allowances were granted during the year 
was therefore 30. Four contributors whose length of service was 
not over fifteen years retired as being "medically unfit for further 
duty." In each of these cases, a sum equal to one-twelfth part of 
the total salary received by them during all theyears of their service 
prior to January 1, 1906, was granted, together with a refund of 
their contributions to the fund. The total amounts were £212 10s. 
Id. ($1,034.15) and £21 9s. 9d. ($104.57), respectively: total £233 
19s. lOd. ($1,138.72). Seven contributors died before entering upon 
pension, and their contributions to the fund, amounting to £87 4s. 3d. 
($424.42) were paid to their legal representatives. To one hundred 
contributors who voluntarily retired from the education service 
before becoming entitled to participate in the benefits of the fund 
contributions amounting to £1,014 10s. Id. ($4,937.08) were re- 
turned. The total number of contributors who retired from the 
education service during the year was 141. Five pensioners died 
during the year, of whom 4 left widows, and 2 children under the age 
of fourteen years, to whom annual allowances were granted. Three 
children attained the age of fourteen years, and their allowances 
consequently ceased. 

The balance to the credit of the fund at the close of March, 1908, 
was £62,222 lis. ($302,806), and of this sum £48,100 ($234,079) was 
invested on mortgage — £37,100 ($180,547) at 4^ per cent, and 
£11,000 ($53,532) at 5 per cent. The balance of £14,122 lis. 
($68,727), bearing interest at 4 per cent was awaiting investment by 
the public trustee. 

Report on the Police Fund. 

The last annual report of the Board of Administration of the 
Police Provident Fund shows that 1 sergeant and 7 constables were 
retired with annual allowances during the year which ended on 
March 31, 1908. There were at that date 3 exinspectors, 22 exser- 
geants, 40 exconstables, 3 exdetectives, 2 widows, and 2 children 
on the fund, their aggregate annual allowance being £6,574 2s. 6d. 
($31,992.98). The balance sheet shows that the contributions dur- 



CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 253 

ing the year amounted to £7,232 3s. 4d. ($35,195.34), fines to £46 12s. 
6d. ($226.90), and interest to £1,509 16s. 9d. ($7,347.62), whereas, 
on the other hand, life allowances amounted to £6,327 19s. 3d. 
($30,795.03), and numerous other grants were paid, leaving to the 
credit of the fund of £30,537 5s. 7d. ($148,609.67), an increase over 
the amount on hand at the corresponding date of the preceding year 
of £1,411 4s. 4d. ($6,867.69). 

Report on the Government Railways Fund. 

The report of the Board on the Government Railways Super- 
annuation Fund for the year ending March 31, 1908, shows that 
members contributed £45,669 Os. 9d. ($223,248.37) to the fund dur- 
ing the year; fines amounted to £239 5s. ($1,164.31), and interest to 
£5,352 3s. ($26,046.24), while on the other hand, superannuation 
allowances to the amount of £26,758 16s. 7d. ($13,279.85) were paid 
during the year to 484 members of the railway service who had either 
voluntarily resigned or been retired as medically unfit, allowances 
amounting to £3,799 12s. 9d. ($18,490.94) were paid to 105 widows 
and 173 children, the dependents of deceased members of the service 
who had not retired on superannuation at the time of their death, 
refunds amounting to £342 9s. Id. ($1,666.55) were paid to the legal 
representatives of deceased members, a sum of £3,610 19s. 7d. 
($17,572.83), representing contributions of members of the service 
who voluntarily retired or whose services were otherwise dispensed 
with during the year was refunded to members concerned and other 
small disbursements were made, leaving a balance to the credit of 
the fund of £126,642 18s. lid. ($616,307.90). 

The total amount of annual allowances granted by the Board from 
the beginning of the fund until the end of March, 1908, was distributed 
as follows :('^) 

Life allowances on account of voluntary retirements (449 persons) 1140, 766. 74 

Life allowances on account of retirements as "medically unfit," (87 

persons) 24,193.13 

Allowances to 109 widows and 211 children 22, 935. 39 

Total annual allowances granted 187, 895. 26 

Seventy beneficiaries have died since the inauguration of the fund, 
including nineteen during the year under review, and seven members 
who had been placed on the fund as "medically unfit" resumed duty. 
The fund was relieved of an annual Hability of £4,621 18s. ($22,492.48) 
in respect to these seventy-seven members. Forty-four children 
have reached the age of fourteen years (eight during the past year), 
two children have died, six widows remarried, and three widows died, 
lessening the liability of the fund by an additional £761 13s. ($3,706.57) 
per annum. 

o Report of Board on Government Railways Superannuation Fund, 1908, p. 2. 



254 



CIVIL-SEKVICE KETIEEMENT IN NEW ZEALAND. 



The number of persons actually on the fund at March 31st, 1908, 
was 724, involving an annual habihty of £33,226 7s. 9d. ($161,696.21) 
as shown by the following statement of annual balances and annual 
allowances actually granted by the board :(") 





Balance. 


Allowances. 


1903 


J{34,340.88 
196,401.54 
334,184.42 
442,776.52 
538,899.72 
616,307.90 




1904 


$58,450.23 


1905. 


41 , 459. 58 


1906 


30,895.85 


1907 


21,406.50 


1908. 


35, 683. 10 






Less members died, etc 




187,895.26 
26, 199. 05 








Annual liability at March 31 , 1908 


161,696.21 









CONCLUSIONS. 

The experience of New Zealand in retiring its civil employees is 
particularly instructive to the student of superannuation schemes. 
Hampered by few theories or precedents, but mindful of the experi- 
ence of the mother country and of other British colonies, the citizens 
of New Zealand have proceeded to try several schemes, discarding a 
scheme as soon as its inadequacy or unsuitability was demonstrated 
and substituting another which was free from the features found 
objectionable in previous ones. The result has been a gradual devel- 
opment of ideas along rational lines, until it would seem that there 
has been evolved a plan that is actuarially sound, one that meets 
the requirements of the service, and one that fits in with the ideas 
of the people generally as to what is fair and suitable. 

After thirteen years of experience in granting straight pensions 
that plan was abandoned because of the fear that it meant eventually 
a too heavy charge on the public treasury. Abandoning the pension 
system, therefore. New Zealand contented itself for a period of 
thirteen years with making gifts of lump sums to each employee 
retiring from the service, basing the amount of the gift on the length 
of service. This was, however, merely a makeshift in recognition of 
the fact that old people could not be dismissed from office without 
great hardship unless some kind of provision was made for them. 
Even this was felt to be too heavy a burden on the Treasury, however, 
and there followed the Act of 1886, which authorized deductions from 
salaries, and was simply a scheme of compulsory savings established 
with the idea that the superannuated employee must be taken care of, 
but at his own and not at the public expense. It should be noted 
that the change made in 1886 was practically the withdrawal of a 
privilege which existed before, the compensation of a month's salary 
for every year's service, and was in harmony with the spirit of 

o Report of Board on Government Railways Superannuation Fund, 1908, p. 1. 



CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 255 

retrenchment which flourished in New Zealand in the last half of the 
eighties, when there was a considerable cutting down of salaries and 
dispensing with employees. While this arrangement promised relief 
to the Treasury, it was not satisfactory to the employees of the Govern- 
ment as a retirement measure, because they saw that the sum to the 
credit of the individual on retirement would be inadequate in case 
the officer lived many years after retirement. The actions taken in 
1871 of abolishing the pension system, and in 1886 of abolishing the 
compensation plan and requiring deductions from salaries were taken 
purely in the interest of the treasury. In 1893, for the first time since 
the pension system was established in 1858, action was taken which 
was designed purely and simply in the interest of the service. Good 
as far as it went, the provision for compulsory insurance proved^ 
however, like the provision for compulsory savings, inadequate as a 
substitute for a retirement measure. Finally, in 1907, a contributory 
retirement plan with a subsidy from the Government was adopted. 
This plan, by permitting continuance of insurance in the Government 
Life Insurance Department if the employee so desires, affords ade- 
quate provision for eveiy possible contingency in the life of the civil 
employee. 

The situation in New Zealand, therefore, at present is this: The 
Government has come to realize, on the one side, and the civil 
service, on the other, that it is impossible to get something for nothing. 
The Government has ceased to attempt the abolition of pensions and 
compensations and the compulsion of deductions from salary without 
making a corresponding contribution, and has become willing not 
merely to retire those who are already superannuated, but to con- 
tribute a certain permanent annual subsidy toward the support of a 
superannuation measure for the benefit of the civil service. At the 
same time, the members of the civil service have come to see that a 
system of free gifts from the Government, whether it be in the nature of 
pensions, compensations, or gratuities, is not the most desirable plan 
that could be devised, and they are almost unanimously willing to 
contribute from their salaries to the support of a retirement plan 
which meets their approval. 

The plan is based on two fundamental principles not observed in 
the contributory plans whose funds have become insolvent: 

(1) The rates of contribution are fixed by the age of entrance into 
the service and not by any arbitrary percentage of assessment. This 
means that the amount of the annuity is determined in each case by 
the length of service and amount of salary, and that each employee 
contributes only to his own retirement, so that the plan is equitable 
as between different classes of employees. 

(2) A sharp line of demarcation is drawn in this plan between 
accrued and future liabilities. The Government agrees to pay all 
annuities on services rendered up to the time of the adoption of the 



256 CIVIL-SEEVICE EETIREMENT IN NEW ZEALAND. 

plan. Since the contributions of the civil servants are not sufl&cient 
to provide all the generous benefits — including those to invalids and 
widows and orphans — the Government agrees to make up whatever 
deficit there is on this score also. There is no expectation of making 
the plan self-supporting. 

The calculations as to the cost to the Government of estabUshing 
and carrying on this plan were carried only through the first year, 
but since the law makes provision for triennial valuations of the fund, 
this is of little practical importance if the people of New Zealand 
are wilHng to accept the plan on a mere estimate as to its cost. Even 
if the possible maximum cost had been computed out to the last 
year of life of the last member of the present service, the necessity 
for frequent valuations of the fund would be imperative on other 
grounds. The benefits provided under the plan are very liberal, 
including as they do allowances for the disabled and for the widows 
and orphans as well as for the superannuated. The sufficiency of the 
fund to meet these benefits can be ascertained only by periodical 
valuations, in ^dew of the uncertainty, owing to the lack of statistics, 
as to the strain on the fund from invalidity allowances on the one 
hand, and the relief on the other from the forfeiture of interest by 
those resigning from the service before reaching the retirement age. 
It is apparent, however, that the fundamental principles underlying 
this plan might have been applied to a plan designed to be entirely 
self-supporting, but the people of New Zealand have been willing to 
increase the benefits under the plan beyond what the contributions of 
the employees could support and to make the contributions necessary 
for that purpose. With the liberal benefits provided under the 
Superannuation Act of 1907, requiring permanent help from the 
Government, it is plain that the actuary was right in insisting that a 
provision for frequent valuations of the fund is necessary to insure its 
actuarial soundness. 

Certain details of the plan are worthy of note by the student. 
There is no compulsory age of retirement, notwithstanding England's 
experience that the absence of such provision is inadvisable. Pro- 
vision is made for the cash refund of contributions on separation from 
the service, but interest on them is forfeited — an offset to the liber- 
ality of the benefits provided for those who remain in the service. 
The retiring allowance is based on the salary during the last three 
years of service rather than on the average salary. These are features 
the wisdom of which can be determined only by experience. 

New Zealand's experience in retiring its civil employees is especially 
instructive for two reasons, first, because of the variety of experiments 
made, and, second, because the final conclusion rests on theoretical 
principles generally acknowledged to be sound and yet in actual 
practice "more honored in the breach than in the observance." 



Appendix. 
PUBLIC SERVICE SUPERANNUATION ACT. 

[1907, No. 63.] 
AN ACT to provide a Superannuation Fund for the Public Service (November 25, 1907). 

Be it enacted by the General Assembly of New Zealand in Parliament assembled, and 
by the authority of the same, as follows: 

1. This Act may be cited as the Public Service Superannuation Act, 1907, and 
shall come into operation on the first day of January, nineteen hundred and eight. 

2. In this Act, if not inconsistent with the context, "Board" means the Public 
Service Superannuation Board established under this Act. "Public Service" 
includes the High Commissioner's Office, the Legislative Branch, and every Depart- 
ment of the Government service except the Government Railways Department, so 
much of the Police Department as is included in the Police Provident Fund Act, 
1899, and so much of the Education Department as is included in the Teachers' 
Superannuation Act, 1905. "Contributor" means a contributor to the fund. "De- 
partment" means every branch of the Public Service which is administered sepa- 
rately. "Fund" means the Public Service Superannuation Fund. "Regulations" 
means regulations made by the Governor by Order in Council gazetted. "Salary " of 
a contributor means the rate of salary or wages paid in respect of his service, but does 
not include allowances or payment for overtime. 

PUBLIC SERVICE SUPERANNUATION FUND. 

3. There is hereby established in connection with the Public Service a fund to be 
called the Public Service Superannuation Fund, which shall be administered by the 
Board. 

4. The fund shall consist of (a) the contributions from contributors as hereinafter 
provided; (6) moneys at any time paid into the fund under sections thirty-two and 
thirty-three hereof; and (c) interest from time to time accruing from investment of 
the fund as hereinafter provided. 

5. All moneys belonging to the fund shall be paid to the Public Trustee, who shall 
from time to time invest the same in such manner as is prescribed by regulations. 

6. The fund shall be administered by a Board called the Public Service Super- 
annuation Board, consisting of ten members, namely: A Minister of the Crown; four 
persons to be appointed and removable by the Governor in Council; two persons to 
be elected by and from the contributors who belong to the Post and Telegraph Depart- 
ment; and three persons to be elected by and from the contributors who belong to 
other Departments of the Public Service. 

7. (1) With respect to the elective members of the Board the following provisions 
shall apply : 

(a) A ballot of the members of the Post and Telegraph Department, and a separate 
ballot of the members of the other Departments, shall be taken on the first Monday in 
July, nineteen hundred and eight, and on the first Monday in March in every third 
year thereafter. 

(6) Every ballot shall be taken in manner prescribed by regulations; and if any 
question arises as to the regularity or validity of any ballot, or the voting thereat, such 
question shall be determined by the Minister of Internal Affairs, whose decision shall 
be final. 

(c) If any such member of the Board dies, or by notice in writing addressed to the 
permanent head of the Department of Internal Affairs resigns his office, or ceases to be 
a member of the Public Service, then and in any such case his seat shall become vacant. 

(d) Such vacancy shall be filled by election by a ballot of the members of the De- 
partment or Departments represented by the vacating member; but the person so 

35885— S. Doc. 290, 61-2 17* 257 



258 CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. 

elected shall hold office only for the residue of the period during which his predecessor 
would have held the same if he had remained a member of the Board: 

Provided that where such vacancy arises within three months before the ordinary 
election, a ballot shall not be taken, but in lieu thereof the Governor may appoint to 
such vacancy any member of the Department or Departments represented by the va- 
cating member. 

(2) Notice of the election or appointment of every member of the Board shall be 
gazetted, and such gazetting shall be conclusive evidence of the validity of every such 
election or api^ointment. 

(3) The members to be apiDointed by the Governor in Council may be appointed at 
any time after the coming into operation of this Act and they,, together with the Min- 
ister, may, until the first election of the elective members, exercise all the powers and 
functions of the Board. 

8. With respect to the procedure of the Board the following provisions shall apply: 
(a) The Minister shall be chairman at all meetings at which he is present, and in his 

absence the Board shall elect some other member to be chairman. 

(6) FiA'e members of the Board shall form a quorum. 

(c) Subject to the provisions of this Act and the regulations made thereunder, the 
Board may regulate its own proceedings. 

9. The Governor may from time to time appoint some person to be Secretary of the 
Board, and such person may hold the office of Secretary in conjunction with any other 
office which the Governor deems to be not incompatible therewith, and shall receiA^e, 
out of moneys to be appropriated by Parliament, such salary as the Governor from time 
to time determines. 

CONTRIBUTORS. 

10. (1) Every person who on the coming into operation of this Act is permanently 
employed in any capacity in the Public Service, and every person who on the coming 
into operation of this Act is employed in any Department, and has been continuously 
employed in any one or more Departments for a period of five years or more, may at 
any time within six months after the coming into operation of this Act, by notice in 
writing to the Secretary of the Board, elect to become a contributor to the fund. 

(2) If he so elects, he shall as from the date of his election be a contributor, and en- 
titled to all the benefits of the fund, subject to the provisions of this Act. 

(3) If he does not so elect, he shall not at any future time become a contributor tc 
the fund or participate in its benefits, except on payment of a sum computed in the 
manner prescribed by regulations, and on such conditions as the Board, having due 
regard to the interests of the fund, determines; but he shall continue to be entitled 
to any rights to which but for the passing of this Act he would have been entitled. 

(4) Every person who does not elect to become a contributor, and who has hitherto 
had a deduction made from his salary under the Civil Service Reform Act, 1886, the 
Post and Telegraph Classification and Regulation Act, 1890, or the Civil Service Insur- 
ance Act, 1893, shall continue to pay such deduction as heretofore. 

11. (1) All i^ersons who are first permanently employed in any capacity in the 
Public Service after the coming into operation of this Act shall be contributors to the 
fund, and the provisions of the Post and Telegraph Classification and Regulation Act, 
1890, relating to deductions from salaries, and the Civil Service Insurance Act, 1893, 
shall not apply to such contributors. 

(2) Every person who on the coming into operation of this Act is temporarily 
employed in any capacity in the Public Service may, at any time within six months 
after having completed five years' continuous service in any one or more Departments, 
elect, by notice in writing to the Secretary of the Board, to become a contributor to 
the fund. If he so elects he shall, as from. the date of his election, be a contributor 
entitled to all the benefits of the fund, subject to the provisions of this Act. 

12. (1) The contribution from contributors shall in each case be the following per- 
centage of the salary of each contributor respectively, and shall be deducted from the 
contributor's salary as it becomes payable from time to time, that is to say — 

(a) Five per centum if his age does not exceed thirty years at the tinie when the 
first contribution becomes payable; 

(6) Six per centum if his age then exceeds thirty years but does not exceed thirty- 
five years; 

(c) Seven per centum if his age then exceeds thirty-five years but does not exceed 
forty years; 

(j) Eight per centum if his age then exceeds forty years but does not exceed forty- 
five years; 

(e) Nine per centum if his age then exceeds forty-five years but does not exceed 
fifty years; and 



CIVIL-SEEVICE EETIREMENT lii NEW ZEALAND. 259 

(/) Ten per centum if his age then exceeds fifty years. 

(2) The amount so deducted shall forthwith be paid by the Minister of Finance to 
the Public Trustee to the credit of the fund. 

(3) For the purposes of this section a contributor's age shall be deemed to exceed 
thirty years on and after the thirtieth anniversary of his bii'th, and the other ages 
mentioned in this section shall be calculated respectively in the same manner. 

13. If the salary of a contributor is for any period temporarily stopped on the ground 
of ill health, or if for any period a contributor is on leave of absence without salary, he 
shall during such period continue to contribute to the fund in such manner and to 
such extent as may be prescribed by regulations. 

14. (1) "WTien any person who has had or is liable to have any part of his salary 
deducted under the Civil Service Reform Act, 1886, or the Post and Telegraph Classi- 
fication and Regulation Act, 1890, becomes a contributor, such deduction shall there- 
upon cease, and the amount in the hands of the Public Trustee to his credit by virtue 
of either of such Acts shall be vested independently of the fund for the benefit of the 
contributor and shall, on his retirement or death, be paid as provided by such Act, in 
addition to the benefits to which he is entitled under this Act. 

(2) When any person who has effected a policy on his life under the Civil Service 
Insurance Act, 1893, becomes a contributor, he shall be entitled at his option — 

(a) To keep the policy alive independently of this Act; or 

(b) To surrender the policy and have the surrender value thereof paid to the Public 
Trustee to be invested independently of the fund, and to be paid, together with all 
interest accrued thereon, to the contributor on his retirement, or to his personal 
representatives on his death; or 

(c) To surrender the policy and to receive the equivalent of its surrender value 
in the form of a paid-up policy, following the terms and conditions of the surrendered 
policy, or such other terms and conditions as may be mutually agreed upon between 
the policy-holder and the Government Insurance Commissioner. 

(3) The option conferred by the last preceding subsection may be exercised by the 
policy-holder at any time after he becomes a contributor. 

(4) The Governor in Council may at any time direct that the whole or any part 
of the money standing to the credit of any contributor under subsections one and two 
of this section shall be paid to such contributor. 

15. When any person who is entitled under the Civil Service Act, 1866, to receive 
compensation for loss of office becomes a contributor, the following provisions shall 
apply: 

(a) Save in the manner and to the extent hereinafter in this section stated, his 
right to such compensation shall not be taken away or affected, but shall be cumulative 
with his right to payment from the fund. 

(6) Such compensation shall be calculated only in respect of the period of his 
employment up to the time when he became a contributor and in respect of his salary 
at the time when he became a contributor. 

(c) If on his retirement from the Public Service he receives and accepts a retiring 
allowance from the fund, he shall thereby forfeit his right to such compensation. He 
shall be deemed to have received and accepted a retiring-allowance when he has 
received and accepted his first installment thereof. 

(d) If on his retirement from the Public Service he receives and accepts such com- 
pensation, he shall forfeit his right to a retiring-allowance from the fund, and no 
annuity or periodical payment shall be payable out of the fund on his death; but the 
acceptance of such compensation shall not affect his right to a return of the contribu- 
tions made by him to the fund, or, in case of his death, the right of any other person 
to a return of such contributions. 

(e) If after he has retired from the Public Service he dies before he has received 
and accepted either a retiring-allowance from the fund or compensation under the 
said A.ct, such compensation (if any) shall be payable to his personal representatives, 
and no moneys shall be payable out of the fund except the amount of his contributions. 

(/) Notwithstanding anything hereinljefore contained, if a contributor Avho has 
received and accepted a retiring-allowance dies before the amount paid to him in 
respect to such allowance is equal to the aggregate amount of the compensation to 
which he was so entitled and his contributions to the fund, the difference between 
the said amounts shall be payable out of the fund to and on behalf of the persons 
entitled, under the provisions of sections twenty-five and twenty-six of this Act, to 
the balance (if any) of his contributions to the fund. 

16. If any dispute arises as to whether any person is a member of the Public Service 
within the meaning of this Act, or as to whether any person is, or is entitled or bound 
to become, a contributor to the fund, or as to the length of service of any contributor, 
such dispute shall be determined by the Board, and the determination of the Board 
shall be final and conclusive. 



260 CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 

BENEFITS OF THE FUND. 

17. The fund shall be held and applied for the benefit of the contributors in the 
manner and subject to the conditions hereinafter set forth. 

18. (1) Every male contributor whose length of service is not less than forty years 
or whose age is not less than sixty-five years, and every female contributor whose 
length of service is not less than thirty years or whose age is not less than fifty-five 
years, may at.any time retire from the Public Service at the expiration of three months' 
notice of his or her intention so to do, and shall thereupon be entitled to receive from 
the fund an annual retiring-allowance for the rest of his or her life, computed as follows: 

For every year of service such contributor shall receive one-sixtieth part of his or 
her annual salary, but in no case shall the retiring-allowance exceed two-thirds of such 
salary : 

Provided that the Minister in charge of the Department in which a contributor is 
employed may extend the provisions of this section to any case in which the age of a 
male contributor is not less than sixty years or the age of a female contributor is not 
less than fifty years. 

(2) In the last preceding subsection the term "service" means — 

(a) In the case of an original contributor, continuous employment in the service of 
the Government up to the date of the contributor's retirement, whether permanent 
or temporary, and whether before or after the date at which he becomes a contributor, 
and whether in the Public Service or in any one or more of the other branches of the 
Government service; and 

(b) In the case of a contributor who is not an original contributor continuous em- 
ployment in the Public Service from the date at which he becomes a contributor up 
to the date of his retirement. 

(3) For the purposes of this section the Government service shall be deemed to 
include the service of any Provincial Government and the service of the New Zealand 
Railway Commissioners. 

(4) The term " original contributor" means a person who becomes a contributor 
under the provisions of section ten hereof. 

19. (1) Every contributor who, with the consent or by the direction of the Minister, 
retires from the Public Service on the ground of being medically unfit for further 
duty shall on his retirement be entitled to receive from the fund a retiring-allowance 
for the rest of his life, computed as mentioned in the last preceding section. 

(2) In the case of a retiring-allowance being granted on the ground of the contribu- 
tor being medically unfit for further duty, such retiring-allowance, or any one or 
more installments thereof, may be forfeited by the Board if the contributor fails at any 
time to submit himself for further medical examination when required by the Board, 
or if, being reported on such examination to be medically fit to return to duty, the 
contributor fails to do so when required by the Minister in charge of the Department 
from which he retired; but this subsection shall not apply to any male contributor 
after he has attained the age of sixty-five years, or to any female contributor after she 
has attained the age of fifty-five years. 

(3) For the purposes of this Act a contributor shall be deemed to be medically 
unfit for further duty if on the certificate of at least two medical practitioners approved 
by the Board it is established to the satisfaction of the Board that by reason of mental 
or bodily infirmity, not caused by irregular or intemperate habits, such contributor 
has become permanently unable to perform his duties. 

20. (1) If any contributor who has retired from the Public Service on a retiring- 
allowance is permanently reappointed to the Public Service, his retiring-allowance 
shall thereupon cease to be payable, and he shall again become a contributor to the 
fund; and if he subsequently retires from the said service his retiring-allowance shall 
be calculated separatelj^ in respect of his two successive periods of service and of the 
salary received by him in each of such periods. 

(2) When in any other case than that provided for by the last preceding subsection 
a contributor returns to duty while in receipt of a retiring-allowance, or receives pay- 
ment for services rendered by him to or for any branch of the Government seridce 
while in receipt of a retiring-allowance, then no more of such retiring-allowance shall 
be paid than is equivalent, when added to the remuneration so received bv him in 
•any one year, to his annual salary at the date of his retirement. 

21. A contributor may on his retirement, or at any time before accepting the first 
installment of his retiring-allowance, elect to accept a sum equal to the total amount 
of his contributions to the fund in lieu of his retiring-allowance, in which case he 
shall be entitled to receive such sum accordingly without interest, but no further sum 
shall be payable out of the fund in the event of his death. 

22. For the purpose of computing the retiring-allowance to be granted to a con- 
tributor, his salary shall be deemed to be the average rate of salary received by him 



CIVIL-SEE VICE RETIREMENT IN NEW ZEALAND. 261 

during the three years next preceding his retirement, or if his service has not con- 
tinued for three years, then during the period of his service : 

Provided that where by reason of the age or infirmity of a contributor his salary has 
been reduced, or he has been transferred to a position inferior to that which he pre- 
viously occupied, his retiring-allowance shall be computed on the average rate of 
salary received by him during the three years next preceding such reduction or transfer . 

23. A retiring allowance shall be paid by equal monthly installments, the first 
installment being payable one month after the date of the contributor's retirement. 

24. If any contributor voluntarily retires from the Public Service before becoming 
entitled to a retiring allowance under this Act, or if his services are dispensed with 
from any cause, he shall be entitled to a refund of the whole amount actually con- 
tributed by him to the fund, but without interest. 

25. If any male contributor dies, whether before or after becoming entitled to a 
retiring allowance, the following provisions shall apply: 

(a) If he leaves a wife surviving him, there shall be paid out of the fund to the 
widow, at her election, either (i) an annuity of eighteen pounds during her widowhood ; 
or (ii) the amount of the deceased contributor's contributions to the fund, less any 
sums received by him from the fund in his lifetime. 

(6) Any such election by the widow shall be final, and shall be deemed to be made 
when the first payment from the fund is received and accepted by her. 

(c) If the said contributor leaves a child or children under the age of fourteen years, 
there shall be paid out of the fund to or on behalf of each such child the sum of five 
shillings a week until such child attains the age of fourteen years. 

(d) If the said contributor leaves no widow, the amount of his contributions to the 
fund, less any sums which he has received out of the fund in his lifetime, and less any 
sums which have been paid or may become payable in the future to or on behalf of 
any child or children under the age of fourteen years under the foregoing provisions, 
shall be paid to the personal representatives of the deceased contributor in trust for 
the persons entitled thereto under his will, or, in case of intestacy, for the next of kin 
or other persons entitled to his estate under the Statutes of Distribution. 

26. When any female contributor dies, whether before or after becoming entitled to 
a retiring allowance, the following provisions shall apply: 

(a) If she leaves a child or children under the age of fourteen years, there shall be 
paid out of the fund to or on behalf of each such child the sum of five shillings a week 
until such child attains the age of fourteen years. 

(6) The amount of the contributions of such deceased contributor, less any sums 
which she has received out of the fund in her lifetime, and less any sums which have 
been paid or may become payable in the future to or on behalf of any child under the 
age of fourteen years under the foregoing provisions of this section, shall be paid to 
her personal representative in trust for the persons entitled thereto under her will, or, 
in case of her intestacy, for the next of kin or other persons entitled to her estate under 
the Statutes of Distribution. 

27. (1) Any moneys payable out of the fund under either of the two last preceding 
sections to or on behalf of a child under the age of fourteen may, at the discretion of 
the Board, be either paid to the child himself or expended by the Board for the benefit 
of the child, or paid to the Public Trustee or any other person, to be expended on 
behalf of the child in such manner as the Public Trustee or such other person thinks fit. 

(2) Any moneys payable out of the fund under either of the two last preceding 
sections to the personal representatives of a deceased contributor may, if no grant of 
probate or letters of administration is obtained within three months after the death 
of the contributor, be paid to the Public Trustee in trust for the persons beneficially 
entitled thereto under this Act. 

28. When compensation is paid by the Crown or any Government Department 
under the provisions of the Workers' Compensation for Accidents Act, 1900, or any 
Act amending or substituted for that Act, in respect of an accident to a contributor, 
the following provisions shall apply : 

(a) When such compensation is paid to the contributor in respect of an accident by 
which he has become medically unfit for further duty, all moneys so received by him, 
whether by way of a weekly payment or otherwise, shall to the extent thereof be 
deemed to be received in satisfaction of his retiring allowance under this Act, and such 
allowance shall be reduced or postponed accordingly in such manner as the Board 
directs. 

(6) When any such compensation has been received in respect of the death of a 
contributor by any person entitled under this Act to receive any annuity or peri- 
odical payment in consequence of such death, the compensation so received by that 
person shall to the extent thereof be deemed to be received in satisfaction of such 
annuity or periodical payment, and the same shall be reduced or postponed accord- 
ingly in such manner as the Board directs. 



262 CIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. 

(c) No such compensation shall take away or affect the right of a contributor or any- 
other person to receive from the fund under the provisions of this Act the amount of 
the contributions made to the fund by a contributor. 

29. In no case shall any retiring allowance or other moneys granted or payable out 
of the fund to any person be in any way assigned or charged or pass to any other person 
by operation of law; nor shall any moneys payable out of the fund on the death of a 
contributor be assets for the payment of his debts or liabilities. 

MISCELLANEOUS. 

30. (1) Before the first day of April in each year there shall be prepared by the 
Board, in such form as may be prescribed by regulations, a statement of its revenue 
account for the year ended on the thirty-first day of December preceding, and of its 
balance sheet at the close of such year,' and a statement of membership and of retiring 
and other allowances at the close of such year. 

(2) Such accounts and statements, accompanied by a report from the Board, after 
being audited by the Audit Office, shall, within ten days after the completion of the 
aud.t, be forwarded by the Board to the Minister of Internal Affairs, who shall within 
ten days after the receipt thereof lay the same before Parliament if then sitting, or 
if not, then within ten days after the commencement of the next ensuing session. 

31. (1) For the period ending on the thirty-first day of December, nineteen hundred 
and ten, and for each triennial period thereafter, an examination of the fund shall be 
made by an actuary appointed by the Governor. 

(2) The actuary shall set forth the result of such examination in a report which 
shall be so prepared as to show the state of the fund at the close of the period, having 
regard to the prospective liabilities and assets and the probable annual sums required 
by the fund to provide the retiring and other allowances falling due within the ensu- 
ing three years without affecting or having recourse to the actuarial reserve apper- 
taining to the contributors' contributions. 

(3) The Board shall cause such report to be printed and a copy thereof to be sup- 
plied to each contributor. 

(4) A copy of such report shall, within ten days after it is received, be laid before 
Parliament if then sitting, or if not, then within ten days after the comm'^ncement of 
the next ensuing session. 

32. (1) Forthwith after the coming into operation of this Act, and in the month of 
January in every year thereafter, the Minister of Finance shall pay into the fund and 
out of the Consolidated Fund, without further appropriation than this Act, the sum 
of twenty thousand pounds, together with such further amount (if any) as is deemed 
by the Governor in Council, in accordance with the aforesaid report of the actuary, 
to be required to meet the charges on the fund during the ensuing year. 

(2) A statement of all additional amounts so paid into the fund shall be laid before 
Parliament within ten days after the payment thereof if Parliament is then sitting, 
or, if not, then within ten days after the commencement of the next ensuing session. 

33. (1) Fines which, pursuant to any Act or regulations relating to the Public 
Service, would but for the passing of this Act be payable to any other fund shall here- 
after be paid into the Public Service Superannuation Fund and shall form part thereof. 

(2) Nothing in this section shall apply to any fines payable into the Police Provident 
Fund or the Government Railways Superannuation Fund. 

34. The Governor may from time to time, by Order in Council gazetted, make such 
regulations as he thinks necessary for any of the following purposes: 

(a) Prescribing the manner in which elections shall be conducted, and the facilities 
to be given to members of the Public Service for voting thereat, and to the members 
of the Board for attending meetings thereof; 

(b) Prescribing the powers, functions, and procedure of the Board with respect to 
the fund; 

(c) Prescribing the mode of investment of moneys belonging to the fund; and 

(d) Generally prescribing whatever else he thinks necessary in order to give full 
effect to this Act. 

^ 35. The provisions of this Act shall not apply to the following persons: 

(a) Members of the General Assembly or Ministers of the Crown : 

(b) Any Judge of the Supreme Court or of the Court of Arbitration: 

(c) The High Commissioner: 

(d) Any person entitled under any Act to receive a pension on his retirement from 
the Public Service: 

(e) Any person who is remunerated by fees or commission and not by wages or 
salary : 

(/) Members of the Defence Forces, except the Permanent Militia and other persons 
permanently employed in the said forces: 



CIVIL-SEEVICE EETIREMENT IN NEW ZEALAND. 263 

(g) Any person who is appointed to any place or office which the Governor has by 
Order in Council at or before the time of such appointment declared not to be subject 
to the provisions of this Act. 

OTHER SUPERANNUATION FUNDS. 

36. When prior to the coming into operation of this Act any person has been trans- 
ferred from the Public Service to the service of the New Zealand Railway Commis- 
sioners or to the Government Railways Department, and has served continuously in 
the Public Service and that service or Department, then, for the purpose of computing 
his retiring-allowance under the Government Railways Superannuation Fund Act, 
1902, such service shall be deemed to be service in that Department within the meaning 
of that Act. 

37. Any contributor to the Police Provident Fund, the Government Railways 
Superannuation Fund, the Teachers' Superannuation Fund, or the Public Service 
Superannuation Fund who is after the passing of this Act transferred from one branch 
of the Government service to another shall continue as a contributor to the fund which 
he originally joined, and shall be entitled to the benefits accruing thereunder in the 
same manner as if no such transfer had taken place. 

38. Every person who after the passing of this Act becomes a contributor to the 
Police Provident Fund or the Government Railways Superannuation Fund shall con- 
tribute to such fund at the same rate as that provided for by section twelve of this Act. 

39. Section eleven of the Appropriation Act, 1887, is hereby repealed as from the 
first day of April, nineteen hundred and eight; and, in the case of any person who 
retires from the Civil Service after that date, any superannuation allowance to which 
he is entitled under the Civil Service Act, 1866, shall be calculated in the same manner 
as if the said section had not been passed. 

SPECIAL PROVISION AS TO THE POLICE FORCE. 

40. (1) On a day to be fixed by the Minister of Justice (being not later than six 
months from the coming into operation of this Act) a ballot shall be taken of the con- 
tributors to the Police Provident Fund on the proposal that such contributors shall 
become contributors to the fund established under this Act in lieu of the first-men- 
tioned fund. 

(2) The ballot shall be taken in such manner as the said Minister directs. 

(3) If the result of the ballot is that a majority of the votes recorded thereat are in 
favor of the proposal, then, as from a date to be fixed by the Governor by notice in the 
Gazette, the following provisions shall apply: 

(a) The Police Provident Fund shall be abolished, and the amount then standing 
to its credit shall be paid by the Public Trustee into the fund established under this 
Act. 

(6) All contributors to the Police Provident Fund shall be deemed to be contribu- 
tors to the fund established under this Act, and shall thereafter contribute thereto at 
the rate prescribed by this Act for the age of each such contributor at the date when 
Ms first contribution became payable under the Police Provident Fund Act, 1899. 

(c) All retiring and other allowances then payable under the last-mentioned Act 
shall from time to time be payable out of the Public Service Superannuation Fund. 

(d) The Police Force shall become part of the Public Service within the meaning 
of this Act, and the provisions of this Act shall apply thereto accordingly. 

(e) One person to be elected by the members of the Police force from among their 
number shall be added to the Public Service Superannuation Board, which shall there- 
after consist of eleven persons, and the provisions of section seven of this Act shall 
apply, mutatis mutandis, to any such election, save that the first election shall take 
place on a day to be determined by the Minister of Justice. 

SPECIAL PROVISION FOR EMPLOYEES OF THE WELLINGTON AND MANAWATU RAILWAY 

COMPANY. 

41. (1) The Minister for Pv,ailways may at any time, by notice in the Gazette, declare 
that the provisions of the Government Railways Superannuation Fund Act, 1902 
(hereinafter referred to as the said Act), shall extend and apply to persons employed 
by the Wellington and Manawatu Railway Company (Limited); and, subject to the 
provisions of this section, such provisions shall be extended and apply accordingly aa 
from a date to be fixed by the Minister in such notice. 

(2) Every person who at the date so fixed is permanently employed in any capacity 
by the said company may at any time within six months after that date elect to become 
a contributor to the Government Railways Superannuation Fund, and if he so electa 



264 CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. 

he shall, subject to the provisions of the said Act and of this section, be entitled to 
all the benefits of the said fund in the same manner as if he had first entered the service 
of the Government Railways Department at the time when he so elects: 

Provided that any such person may, if he so desires, pay into the said fund, either 
in one sum or in such payments as may be prescribed by regulations, the amount of 
contributions that would have been payable by him had he become a contributor on 
the first day of January, nineteen hundred and three (the date when the said Act came 
into operation), and in such case the benefits to which he is entitled shall be computed 
as from such last-mentioned date, and the rate of his contributions shall be the same 
as if he had become a contributor to the said fund on that date: 

Provided also that, in consideration of the company paying into the fund by way 
of subsidy either a sum of five thousand pounds or the sum of one thousand pounds 
per annum for a period of five years (which payments the company is hereby authorized 
to make), the benefits accruing to any person in the employ of the company on the 
coming into operation of this Act, and who pays contributions as from the said first 
day of January, nineteen hundred and three, shall be computed on his full period of 
continuous service with the company. 

(3) With respect to persons who after the date fixed by the Minister as aforesaid are 
first permanently employed in any capacity by the said company, it shall be a condi- 
tion of their employment that they shall be contributors to the said fund and be 
entitled to its benefits: 

Provided that before entering the company service every such person shall be 
required to pass the medical examination prescribed by the Government Railways 
Department in respect to persons who are entering the Government Railway service, 
and such examination shall be made by the Government Railway Medical Ofiicer at 
the expense of the company. 

(4) The said company shall from time to time, when requested by the Minister for 
Railways, furnish him with such information respecting the names of persons in its 
employ, their age, length of service, and otherwise, as he may require. 

(5) The Governor may from time to time, by Order in Council gazetted, make such 
regulations as may be necessary for the carrying out of this section. 



APPENDIX G. 



(Senate Document No, 420, 61st Congress, 2d Session.) 



CIVIL-SERVICE RETIREMENT— NEW SOUTH WALES, 
AUSTRALIA. 

BY 

HERBERT D. BROWN. 



Prepared under the direction of Chas. P. Neill, Commissioner of Labor. 



LETTER OE TRANSMITTAL 



Department of Commerce and Labor, 

Office of the Secretary, 
Washington^ March 8, 1910. 
Sir: In compliance with your resolution 119, of January 11, 1910, 
directing this department to furnish, as soon as practicable, " such in- 
formation as may now be in the possession of the Bureau of Labor 
on the subject of foreign and domestic retirement plans for em- 
ployees of government civil service and in the service of industrial 
and transportation corporations," I have the honor to transmit here- 
with a report relating to civil service retirement in New South Wales. 
The Bureau of Labor now has in course of preparation reports 
covering civil service retirement systems in several other foreign 
countries, and also a report covering existing provisions for retire- 
ment for public-school teachers and other municipal employees, and 
for employees of railroads in the United States. These reports will 
be transmitted at as early a date as practicable. 
Respectfully, 

Benj. S. Cable, 
Acting Secretary, 
Hon. James S. Sherman, 

President of the Senate^ Washington, D. G. 

8 



COT^TE^fTS. 



Letter of transmittal 3 

Summary 7 

Constitution Act of 1854 8 

Civil service act of 1884 8 

First triennial investigation of superannuation fund, 1887 10 

Popularity of civil service act 10 

Insolvency of superannuation fund indicated 11 

Want of proper data for exact valuation of fund 12 

Causes of deficiency of fund given by Actuary Teece 14 

Inadequacy of contributions 14 

Lack of provision for accrued liabilities 14 

Eetirements for purposes of retrenchment 15 

Computation of pensions on basis of fractional years 17 

Payment of gratuities to widows and orphans 17 

Remedial measures suggested 17 

Skepticism of civil service board as to condition of fund 17 

Second triennial investigation of superannuation fund, 1890 18 

Insolvent condition of fund found intensified 18 

Causes of deficiency of fund given by Actuary Trivett 20 

Retirements before legal age for purpose of retrenchment 20 

Insufficiency of contributions , 22 

Unduly large benefits 22 

Practice of ignoring interest on back contributions 22 

Remedial measures recommended 22 

Need of adequate data for valuation of fund 23 

Advantages of maintaining fund and keeping it solvent 24 

Continued reluctance of civil service board to accept actuary's findings. 24 

Third triennial investigation of superannuation fund, 1893 26 

Insolvent condition of fund extremely pronounced 26 

This valuation of fund based on most extensive and accurate data 27 

Causes of deficiency of fund given by Actuary Coghlan 28 

Fund saddled with initial liability 28 

Benefits disproportionate to contributions -- 28 

Fund employed to carry out government's retrenchment policy.. 29 

Remedial measures recommended 29 

Reduction of 65 per cent in allowances necessary 29 

Five changes in plan suggested as alternative 29 

Final recognition by civil service board of inadequacy of plan 30 

Hesitation of government to attempt reconstruction of fund 32 

5 



6 CONTENTS. 

Pasre. 

Public service act of 1895 (consolidated with other acts in 1902) 32 

Option of discontinuing payments allowed contributors 32 

Endowment assurance required of new entrants 32 

Fourth actuarial valuation of superannuation fund, 1897 34 

Deficiency in superannuation fund found reduced 34 

Option of discontinuing contributions not exercised by older 

employees 35 

Exhaustion of superannuation fund inevitable without outside help.. 36 

Possible methods of resuscitating fund suggested 37 

Civil service board opposed to resuscitation of existing fund 37 

Fifth actuarial valuation of superannuation fund, 1901 38 

Deficiency in superannuation fund still large 39 

Exhaustive discussion of causes responsible for failure of fund 41 

Fund established with dormant liability 41 

Fund used for improper purposes :... 42 

For purposes of retrenchment in salary expenditures 42 

For payment of gratuities to dependents of deceased em- 
ployees 42 

Need of retirement measure still felt 42 

Endowment assurance inadequate as retirement measure 43 

Outline presented by Actuary Trivett of requirements for safe pension 

scheme 43 

Indorsement of actuary's views by civil service board 44 

Public service (superannuation) act of 1903 44 

Obligations toward contributors assumed by goyernment 44 

Conclusions ....,.- 46 



CIVII-SEHVICE RETIREMENT IN" NEW SOUTH WALES, 
AUSTRALIA. 

By Herbert D. Brown." 
SUMMARY. 

The Government of New South Wales, Australia, has not had a 
great variety of experience in retiring its civil employees, but that 
little is typical of certain mathematical errors easily made in formu- 
lating and carrying out a retirement policy, and it is therefore valu- 
able as a warning. 

A system of granting straight pensions out of a yearly subsidy 
of £3,500 ($17,033) was launched in 1854 and continued for thirty 
years. 

The Civil Service Act of 1884 abolished the pension system and 
established instead a contributory plan of retirement. This was 
based on a 4 per cent deduction from salaries aided by a Government 
subsidy of £20,000 ($97,330) for five years in addition to the £3,500 
($17,033) already granted. Owing to the actuarial unsoundness of 
the plan, the superannuation fund established under it soon became 
insolvent, and the plan was accordingly abandoned after eleven 
years' trial. 

The Public Service Act of 1895, subsequently consolidated into the 
Public Service Act of 1902, provided for the withdrawal from the 
superannuation fund of all who so desired and the bestowal on them 
of a gratuity based on length of service and average salary instead of 
a pension. This act also forbade future entrants into the service to 
contribute to the fund and required them to take out endowment 
assurance. 

The Public Service (Superannuation) Act of 1903 was passed on 
the actual exhaustion of the superannuation fund long known to be 
insolvent. It provided for the Government's assumption of the 
obligations of the fund. 

The present state of affairs, then, is that the Government is engaged 
in paying retirement allowances and gratuities to those whom it re- 
quired for years to contribute to an insolvent fund. It will have to 
continue to do so until all those who entered the service before 1895 
are dead — an obligation that will not be fulfilled short of forty years 
hence. Those who have entered the service since 1895 have only 
their endowment assurance to look to on retirement from the service. 

<» Mr. Brown desires to give credit to Harriet Connor Brown for valuable 
assistance in the preparation of this report. 



8 CIVIL-SERVICE EETIEEMENT IN NEW SOUTH WALES. 

This provision for compulsory insurance is not considered a com- 
plete and satisfactory solution of the problem of superannuation in 
the civil service. The following statement was made by the Govern- 
ment Statistician of New South Wales in April, 1909, in answer to 
an inquiry by the United States Bureau of Labor : 

"When contribution to the superannuation fund was compulsory 
it was not popular among a large number of public servants, par- 
ticularly the younger members, but the general feeling now is in 
favor of a superannuation fund." 

CONSTITUTION ACT OF 1854. 

Provision was made by imperial act in 1854 for setting aside the 
annual sum of £3,500 ($17,033) from the Consolidated Revenue Fund 
for pensions to superannuated officers of the civil service. 

CIVIL SERVICE ACT OF 1884. 

A study of the one contributory retirement plan tried by New 
South Wales and the reasons for its failure throws much light on the 
fundamental principles which must underlie any sound and equitable 
superannuation measure. 

Under the superannuation clauses of the Civil Service Act of 1884, 
a fund called the " Civil Service Superannuation Account " was cre- 
ated on January 1, 1885. To this fund all civil servants, with the excep- 
tion of certain minor employees, were required to pay an annual con- 
tribution of 4 per cent of their salaries. To it the Government agreed 
to contribute an annual subsidy of £20,000 ($97,330) for five years, 
in addition to the £3,500 ($17,033) already provided. Provision was 
made in the law for an actuarial investigation into the state and 
sufficiency of the fund every three years. Compulsory contributions 
were required from all clerical, professional, and educational officers, 
and also from officers in the higher branches of the railway, the 
postal, and the telegraph services. The only exceptions made were 
the cases of minor employees of the railway service, and messengers, 
housekeepers, letter carriers, stampers or sorters, bailiffs, wardens, 
matrons, nurses, attendants, boatmen, storemen, and persons employed 
in the printing and telegraph offices, dredge and marine services, and 
other persons occupying positions of similar class, character, or im- 
portance. While not required to contribute to the fund, these persons 
were allowed to do so if they so elected, and they thus became 
entitled to the benefits of the fund. 

The minimum age for entry of officers to the clerical division was 
seventeen years, but no maximum age was prescribed. No age was 
specified in regard to officers of the professional division. Pupil 
teachers, from whom the main body of teachers was recruited, were 



CIVrL-SEEVTCE EETIKEMENT IN NEW SOUTH WALES. 9 

required to be not less than fourteen nor more than seventeen years 
of age at entry. No physical examination was required in connection 
with entry to the public service. 

Retirement was permitted to any civil employee who had served 
for fifteen years or upward and who had reached the age of sixty 
years, or who had become permanently incapacitated owing to in- 
firmity of mind or body, whether by reason of illness, accident, or 
merely the gradual passage of time. Retirement was not made 
compulsory at age of sixty. 

If retirement on account of physical incapacity was voluntary, the 
report of the government medical officer only was required prior 
to the authorization of retirement. If the retirement was compulsory, 
a medical board consisting of three medical officers was required to 
furnish a report. 

No restriction of any kind was placed upon the employment of a 
pensioner outside of the government service. The act contained a 
provision which empowered the Government to recall to the service 
officers retired on the ground of ill-health, who subsequently recov- 
ered, but such provision was not acted upon in any case. If an officer 
refused to return to the service when so called his pension was to be 
forfeited, and of course if he resumed duty it was discontinued, but 
in the event of a recurrence of his infirmity he was entitled to his 
pension with any prescribed increase for additional service. 

The rates of superannuation allowance were: For fifteen years of 
service fifteen-sixtieths of the average annual salary for the three 
years preceding date of retirement, for sixteen years of service sixteen- 
sixtieths of the same, and so on, increasing one-sixtieth for every year 
of service up to 40, at which the maximum allowance of forty-sixtieths, 
or two-thirds, of such average salary is reached. The maximum 
salary in respect of which contributions could be levied or superan- 
nuation allowances computed was £1,000 ($4,867), in the general 
division, and £1,200 ($5,840) in the professional division. 

In addition to the pension benefits provision was made for the 
payment of gratuities in the cases of such as had not served for 
fifteen years, as follows: 

(1) Those whose services were dispensed with (except for mis- 
conduct) or who, owing to mental or bodily infirmity, might be com- 
pelled to retire, one month's pay for each year of service. 

(2) Those who, in the discharge of their duties, received such 
bodily injury as might incapacitate them for further service, two 
months' pay for each year of service, with a minimum allowance of 
six months' salary. 

(3) The widow or children under 16 years of age who might be left 
by the death of an ofiicer " in necessitous circumstances," a maximum 
allowance of six months' salary. 



10 CIVIL-SERVICE RETIREMEKT IN NEW SOtJTH WALES. 

The whole amount to credit of the fund was in the' keeping of the 
Government, and was credited with interest at the rate of 4 per cent 
per annum, payable half-yearly. Pensions have been payable monthly 
or occasionally, at the option of the pensioner, quarterly. 

The deductions of contributions and the payment of pensions have 
been attended to by officials of the Treasury in connection with their 
general duties relating to the receipt of revenue and the disburse- 
ment of public funds. The duties of administration, including consid- 
eration of claims upon the superannuation account, have been per- 
formed by the Public Service Board, which also has general super- 
vision of the service, regulating matters of appointment, rates of pay, 
and general discipline of the service. The only direct expense in 
connection with the administration of the account has been an allow- 
ance of £75 ($365) a year paid to the Government Actuary, in 
addition to his regular salary. 

FIRST TRIENNIAL INVESTIGATION OF SUPERANNUATION FUND, 

1887. 

While the Civil Service Act of 1884 continued in force for eleven 
years, it was known long before it was repealed by the Public Service 
Act of 1895 that the superannuation fund which it established was in 
an unsatisfactory condition. The weakness of the plan and the 
unsafety of the fund were revealed as early as 1889 by the first of the 
triennial actuarial investigations undertaken in accordance with the 
provisions of the law. The actuary intrusted with the duty of 
inquiring into the state and sufficiency of the superannuation account 
at this time was Mr. Eichard Teece, secretary of the Australian Mu- 
tual Provident Society. He submitted to the Civil Service Board a 
clear, careful, and elaborate report upon the subject, in which he 
seriously impugned the solvency of the fund. His report was re- 
ceived, however, with skepticism by the Civil Service Board and in- 
difference by the public, and his recommendations were not acted upon. 

POPULARITY OF CIVIL SERVICE ACT. 

The general provisions of the act had met with popular approval. 
There was a lively appreciation of its benefits and no serious disposi- 
tion to count the ultimate cost. In its report of 1889 to the Colonial 
Governor the Civil Service Board recommended amendment of that 
section of the act which dealt with the claims of widows to gratui- 
ties, saying that that provision — 

Should be made general and not limited to those in " necessitous 
circumstances," a provision which imposes on the board the invidious 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 11 

duty of deciding, in each case submitted, whether the applicant is 
or is not in such circumstances as to warrant a recommendation in her 
favor. 

This alteration was suggested by the Board in spite of the actuary's 
warning as to the perilous condition of the fund. The practical 
question of ways and means did not appear to excite any great atten- 
tion from the members of the Board, who were principally struck 
with the improvement wrought in the service by a measure which 
provided retirement for the inefficient and promotion for the efficient. 
Further saying: 

We are of opinion, although the act requires amendment, as above 
stated, its provisions have tended in a marked degree toward an 
improved administration of the public departments, to good disci- 
pline, and to a more efficient performance of duty on the part of the 
officers, as the enforcement of a higher standard of educational attain- 
ments in regard to candidates for employment has checked the admis- 
sion to the service of unqualified persons. In the reorganization of 
the departments, which has been carried on during the five years the 
act has been in force, special attention has also been given to this 
matter, and it is evident that very satisfactory results have been 
secured under an admittedly defective act. 

By the retirement, under the superannuation clauses of the act, of 
the old and infirm, vacancies have occurred which have enabled the 
junior officers to obtain merited promotion, and the certainty that 
their claims would have fair consideration by the Board has, to a 
large extent, removed the discontent which previously existed in some 
departments." 

INSOLVENCY OF SUPERANNUATION FUND INDICATED. 

Mr. Teece took his task seriously and attempted conscientiously to 
rouse the Board to an appreciation of the dangerous condition of the 
fund and to suggest means of averting the danger. Said he : 

My duty to the Board would have been fully discharged had I con- 
tented myself with a mere valuation of the liabilities and the presen- 
tation of a balance sheet exhibiting the surplus or deficiency in the 
fund. During the progress of my investigation, however, several 
letters from correspondents interested in the matter have appeared 
in the press urging a reduction in the rate of contributions deducted 
from the salaries of civil servants, while the editorial remarks of the 
city journals on the reports of the Board indicate that there is a pre- 
vailing opinion that the fund is in a highly satisfactory condition. 
In view of these circumstances I feel that this report will cause a 
somewhat rude awakening, and I therefore deem it advisable to sub- 
mit to the Board explanations on various points which will, I hope, 
enable its true meaning to be intelligently appreciated.* 

« Report of the CivU Service Board of New Soutli Wales, 1889, p. 3. 
' Ibid., p. 7. 



12 



CIVIL-SEBVICE RETIEEMENT IN NEW SOUTH WALES. 



WANT OF PROPER DATA FOR EXACT VALUATION OF FUND. 

In presenting his valuation of the liabilities of the fund, Mr. Teece 
called attention to the difficulty of the task on account of the want 
of proper data on which to base the calculations, and the uncertainty 
of a nurnber of the factors involved. Tables of the rates of retire- 
ment in various services are exceedingly scarce, but such as are avail- 
able disclose the fact that the experience among one body of men can 
not safely be assumed as that which will obtain among another body 
differently circumstanced. The only safe experience for the determi- 
nation of this element would have been that of the civil service itself 
and there had not been time, as Mr. Teece pointed out, to collect and 
tabulate this information, even if it had been accessible. Among the 
elements of uncertainty involved in the calculation was that of the 
rate of annual increases of salary which it would be possible to use 
as a basis for calculating the average retiring allowance after various 
periods of service. Mr. Teece also pointed out the danger to the 
fund in the option which permitted certain classes of employees to 
join or not join it, as they felt disposed, by showing that only those 
who expected shortly to derive some tangible benefit would be likely 
to join. Another element of uncertainty and danger in the plan, 
which he condemned, was the provision of gratuities for widows and 
orphans. " Such a provision," said he, " is out of place in a super- 
annuation fund." While all these uncertain factors made the results 
of his calculation less rigidly accurate than they otherwise would 
have been, Mr. Teece's figures were still sufficiently exact to give 
startling indication of the rapidity with which the claims on the fund 
were accumulating. The receipts and disbursements between Janu- 
ary 1, 1885, when the act went into effect, and December 31, 1887, 
showed a balance of only £235,436 lis. 8d. ($1,145,752.13), while the 
valuation balance sheet showed an estimated deficiency of £1,325,706, 
10s. 4d. ($6,451,550.76). 

CONSOLIDATED REVENUE ACCOUNT, JANUARY 1, 1885, TO DECEMBER 31, 1887. 
[From report of the Civil Service Board of New South Wales for the year 1889.] 



Receipts. 


Disbursements. 


Deductions from salaries 


$949,607.81 

291,990.00 

51,098.25 

72,074.63 

957. 12 


Pensions under Civil Service Act 

Pensions under Civil Service Act 
(schedule B) 


$59,286.79 


Government endowment 




40,788.41 

118,441.28 

1,459.20 


Interest 


Gratuities 


Fines 


Refunds 




Balance, being fund at December 31, 
1887 


1,145,752.13 










1,365,727.81 


1,365,727.81 



By the following valuation balance sheet Mr. Teece showed very 
clearly the unfortunate actuarial condition of the fund only three 



ClViL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



13 



years after its establishment, the estimated deficiency being some shil- 
lings more than £1,325,706 ($6,451,550) : 

', ALUATION BALANCE SHEET, CIVIL SERVICE SUPERANNUATION FUND, AS AT 

DECEMBER 31, 1887. 



Dr. 



[From Report of the Civil Service Board of New South Wales, for the year 1889.] 



Cr. 



To present value of £3,398 lis. Id. 
($16,539.06), being pensions payable 
to claimants under schedule B of 

the Constitution Act , 

To present value of £21,020 17s. 7d. 
($102,298.11) per annum, being pen- 
sions entered on by 174 officers who 
have retired in terms of the Civil 

Service Act 

To present value of prospective pen- 
sions to officers in the service and 
contributing to the fund at Decem- 
ber 31, 1887: 
6,834 in general 
body (£2,287,029 

12s. Od.) $11,129,829.55 

1,631 female teach- 
ers (£59,832 16s. 
Od.) 291,176.32 

To present value of gratuities to offi- 
cers who may become incapaci- 
tated before having served for fif- 
teen years 



$110,653.74 



1,050,065.14 



11,421,005.87 
24,332.50 



12,605,957.25 



By amount of civil service fund at 

December 31, 1887 

By present value of contributions of 
4 per cent per annum on salaries of 
all contributors on the fund at 
December 31, 1887: 
6,834 in general 
body (£621,070 

10s. Od.) $3,022,439.59 

1,631 female teach- 
ers (£14,659 lOs. 
Od.) 71,340.45 

By present value of annual contribu- 
tion of $17,033, provided under the 
Constitution Act , 

By present value of bact contribu- 
tions of 4 per cent per annum from 
date of entry up to December 31, 
1884, to become available when 
pensions are entered on , 

By present value of government 
contributions 

By estimated deficiency 



$1,145,752.13 



3,093,780.04 

425,818.75 

1,298,138.88 

190, 916. 69 
6,451,550.76 



12,605,957.25 



Mr. Teece then showed how the estimated deficiency must have 

increased still further. He did this by comparing the liabilities in 

respect to pensions actually entered on at December 31, 1887, and 

December 31, 1888, with the amounts to credit of the fund on those 

dates : 

December 31, 1887, the balance at credit of the fund was $1, 145, 752. 13 

The liability under pensions actually entered on was " 1, 050, 065. 14 

Difference 95, 686. 99 

December 31, 1888, the balance had increased to 1, 457, 989. 34 

The liability under pensions entered on was ° 1, 412, 819. 89 

Difference . 45, 169. 45 

Mr. Teece said: 

These figures show that, notwithstanding the receipt of the £20,000 
[$97,330] subsidy from the Government, the fund has gone to the 
bad to the extent of £10,380 13s. 5d. [$50,517.53] in respect of pen- 
sions entered on in one year. The figures further show that the 
funds in hand at 31st December, 1888, were practically only suffi- 
cient to meet the payment for pensions already granted up to that 
date, while the enormous mass of dormant liabilities remained to be 
provided for by the future contributions of the officers and the residue 
of the annual grant of £3,500 [$17,033] under the Constitution Act. 
When it is borne in mind that the contributions of the officers up to 
31st of December, 1888, had been supplemented by the payment of 
£80,000 [$389,320] out of the Consolidated Kevenues, and that only 



•Excluding pensions under Schedule B, 



14 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 

one further payment of £20,000 [$97,330] from that source then 
remained to be paid, it will be at once evident to any actuary, if not 
to any business man, that the fund must be in an insolvent condition, 
although opinions may differ regarding the amount of the defi- 
ciency. Whatever uncertainty may exist regarding the proper 
method of valuing the liabilities attaching to pensions not yet entered 
on, there can be no doubt regarding the liability in respect of those 
already enjoyed, and the figures I have quoted conclusively establish 
the fact that the fund is in an insolvent condition." 

CAUSES or DEFICIENCY OF FUND GIVEN BY ACTUARY TEECE. 

Especially illuminating to the student of retirement plans is Mr. 
Teece's analysis of the causes of the deficiency of the fund. 

The first cause noted was the inadequacy of the contribution of 
4 per cent per annum to provide the promised benefits. He showed 
that this would be sufficient only in the case of an employee entering 
the service at the age of 25 or under, and that for an entrant aged 30 
a minimum contribution of 5 per cent would be necessary, for an 
entrant aged 35 a minimum contribution of 6 per cent, for an entrant 
aged 40 a minimum contribution of 7^ per cent, and so on. Finding 
that the average age at entry of all the officers in the service (exclud- 
ing female teachers) was just under 24 years, he concluded that the 
minimum rate of contribution necessary to provide the promised 
benefits (on the assumption of very moderate increases of salary) was 
from 6 to 7 per cent. He added the caution that this rate would be 
sufficient only when it was paid and accumulated at interest from 
the commencement of service. 

A second cause contributing to the insolvent state of the fund 
pointed out by Mr. Teece was the absence of sufficient provision for 
the accrued liabilities assumed by the fund at the inception of the 
scheme. Even if the contributions of 4 per cent of salary had been 
sufficient to pay the promised benefits, they would not have been suf- 
ficient to pay pensions on services rendered prior to the adoption of 
the plan. Wliile the officer had been entitled to rank for a pension in 
respect of his full period of service, the fund had only been in receipt 
of his contributions since the beginning of 1885, and the claimants 
had come on the fund with such frequency that practically the entire 
fund had been absorbed in three years. " The enormous dormant 
liability with which the fund was burdened owing to this circum- 
stance," says Mr. Teece, " was in some measure provided for by the 
annual grant of £20,000 ($97,330) for five years, but the remedy was 
utterly inadequate to the malady, which, of course, became further 
intensified by the insufficiency under any cir(jumstances of the 4 per 
cent reduction." * 

" Report of the Civil Service Board of New Soutli Wales, 1889, p. 8. 
* Ibid., p. 10. 



CIVIL-SERVICE KETIREMENT IN NEW SOUTH WALES. 15 

The most important cause for the deficiency of the fund mentioned 
by. Mr. Teece revealed a very astonishing political situation. It was 
the unexpected liability in respect of pensions to officers who were 
neither incapacitated nor had attained the age of 60 years. The num- 
ber of retirements in 1885, during the first year of the operation of 
the plan, was 19, the second year 43, the third year 120, which, allow- 
ing 8 deaths, made a total of 174 pensioners drawing from the fund 
£21,020 17s. 7d. ($102,298.10) per annum. The remarkable increase 
for the year 1887 is explained by the fact that for political purposes 
section 46 of the Act of 1884 was taken advantage of. This section 
provided that when the services of any officer were dispensed with in 
consequence of the abolition of his office he might be retired upon a 
superannuation allowance. 

In order to facilitate a scheme of retrenchment the Government 
dismissed in 1887 a number of officers from the public service. Some 
of these were rewarded with gratuities which were paid by the Gov- 
ernment, but 25 were allotted retiring allowances aggregating a sum 
of £4,282 Is. ($20,838.60) per annum, which were made a charge 
upon the superannuation account. The Government appeared to 
imagine that by paying to the fund the amount representing the back 
contributions of 4 per cent on behalf of those whom it had forced 
out of the service that it had fully provided for the extra liability 
which was thus imposed on the fund. No account was taken, how- 
ever, of the accumulations of interest, and the proceeding operated 
prejudicially to the fund in another direction. By making pen- 
sioners of these employees in an unnatural and irregular manner 
the Government constituted them claimants on the fund at an earlier 
period than they would otherwise have become so, and deprived the 
fund of further contributions which would have been made to it had 
they remained in active service. As many of those thus forced into 
retirement were in the prime of life, some even under 31 years of age, 
it is apparent that the cost of pensioning them was very great. 

The essential unfairness of this action did not seem to have im- 
pressed the Board very greatly, for in their report they made the 
following statement of the case: "By the rearrangement and re- 
duction of the staff great annual savings have been made in the de- 
partments concerned, but the result has been to transfer from the 
Consolidated Revenue to the superannuation fund so heavy a charge 
as, in the opinion of the actuary, to seriously jeoj^ardize its solvency." 
It did not seem to occur to the Board that justice to the civil em- 
ployees was as well a proper subject for consideration in connection 
with the matter as the solvency of the fund. Without expression of 
apology or regret, the chairman of the Board stated to the Colonial 
Secretary, in transmitting Mr. Teece's report, that, " at present, the 



16 



OIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



pensions created by the forced retirement of officers amounted to 
£21,934 6s. lid. ($106,743.49) per annum, and future retirements of 
a similar character for 1890 may be set down at £10,000 ($48,665) 
more, or £30,000 ($145,995) in all, irrespective of the amounts paid to 
those officers who are entitled to gratuities," * * *." The loss to 
the employees who were still contributing to the fund seemed to the 
chairman, somehow, to be counterbalanced, by the Government's sav- 
ing through abolition of the pensioner's office. This confusion of ideas 
would seem at least to be suggested by the following paragraph : ^ 

Tested by the experience of the years 1885 to 1889, but eliminating 
the pensions which have arisen under the retrenchment chiefly in 
the Department of Public Lands, Public Instruction, and Eailways, 
the actual results are so nearly in accord with the estimates arrived at 
that they seem to prove that if the forced retirements had not been 
carried out the fund could have borne all usual and legitimate claims 
upon it. The disturbing element is the £21,934 6s. lid. ($106,743.49) 
per annum, now paid to officers whose services have been dispensed 
with, and by the abolition of whose offices the Government's saving 
is estimated at £47,179 ($229,596.60) per annum. 

The havoc wrought in the superannuation fund by the retirement 
on pensions for purposes of retrenchment of officers of the civil service 
can best be understood by reference to the list of such officers appended 
to Mr. Teece's report. It is not necessary to give the whole list of 
officers pensioned under such conditions, but the first twelve on the 
list will suffice to show how young they were in many cases, and how 
heavy in consequence the charge on the fund must have been : 

Officers retired on pensions for purposes of retrenchment under section 46 of 
the " civil service act," 18S4-^ 

[From Report of the Civil Service Board of New South Wales for the year 1889.] 



Pensioner and year pen- 
sioned. 



Occupation. 



Age 
(years). 



Pension. 



1885. 
M' George, John . 



1886. 
Byrnne, M. M. G 

1887. 

Wilson, John 

Goldsmith, Henry... 

Allan, Henry A 

Brown, Kdward 

Canty, Michael 

Chisholm, Daniel H . 

Davidson, John 

Ellis, JohnW 

Evans, Thomas 

Gerard, Francis 



Superintendent Temporary Hospital for Insane, 
Cooma. 



Matron R. C. Orphanage, Parramatta. 



School attendance office, public instruction . 

do 

Draftsman, survey ofi&ce 

Clerk, lands 

Draftsman, survey office 

Chief draftsman, Albury survey office 

clerk, survey office , 

Chief draftsman, survey office 

Accountant, survey office 

Chief draftsman, occupation branch, lands. , 



38 



$341.39 



813. 66 
531. 91 
566. 95 
887. 16 
605. 64 
975. 73 
1,075.74 
1,870.68 
821. 95 
780. 83 



" Report of the Civil Service Board of New South Wales, 1889, p. 13. 

* Same report, p. 14. 

• The full list comprises 130 names, of which only the first 12 are here given. 



CIVIL-SEEVICE EETIREMENT IN NEW SOUTH WALES. 17 

Fourtli and fifth causes of the deficiency, in the opinion of Mr. 
Teece, might be found in the method of computing pensions on the 
basis of fractional instead of only integral years, and in the payment 
of gratuities to widows and relatives of deceased officers, a provision 
he regarded as repugnant to the principles of a superannuation 
scheme, and which he considered should not have found a place in 
the act. 

REMEDIAL MEASURES SUGGESTED. 

In considering how the fund might be placed in satisfactory con- 
dition, Mr. Teece enumerated three courses, one or all of which might 
be followed: 

(1) The rate of contribution might be increased. 

(2) The rates of pension might be reduced. 

(3) The Government might rescue the fund from its unsatisfactory 
condition and provide for its future stability. 

He considered the first course inadvisable, believing that the con- 
tribution of 4 per cent could scarcely be increased without inflicting 
hardship on the contributors. He thought a reduction in the rate of 
pensions not unfair, and suggested that the most equitable way to 
accomplish this would be to base the amount of the pensions on the 
average salaries over the whole period of service, instead of those of 
the last three years. It was his opinion, however, that the chief 
remedy must come from the Government. His recommendation was 
that the Government be urged to grant an additional income of at 
least £50,000 ($243,325) per annum in order that the fund might be 
able to discharge the liabilities which it had incurred. He laid great 
stress on the " positive cruelty " to the younger members of the 
service of a condition which compelled them to go on contributing to 
a fund after it was definitely known that when their time to retire 
arrived there would be no funds wherewith to liquidate their claims. 

SKEPTICISM OF CIVIL SERVICE BOARD AS TO CONDITION OF FUND. 

Mr. Teece's warning and recommendations were not heeded. The 
members of the Civil Service Board appear even to have doubted the 
correctness of his conclusions. In transmitting his report to the 
Colonial Secretary, in a letter dated December 30, 1889, the chairman 
of the Board called attention to the unsatisfactory condition of the 
fund as disclosed by Mr. Teece, and suggested the desirability of con- 
tinuing to subsidize the fund, but added, " We find it difficult to 
believe that the fund is in the deplorable condition reported by Mr. 
Teece." The latter had stated, after careful valuation of the fund, 
that " an additional income of at least £50,000 ($243,325) per annum " 
would be required to place it in a solvent position, but the chairman, 
S D— 61-2— Vol 59 23 



18 



CIVIli-SERVICE RETIREMENT IN NEW SOUTH WALES. 



of the Board set this conclusion aside with the following off-hand 
statement : 

The sum will, no doubt, at first si^ht be considered to be a large 
one, but from a rough calculation it appears to us that £25,000 
($121,662.50) per annum will be sufficient in lieu of the sum suggested 
by the actuary; and when it is considered that the necessity for the 
payment is caused by a saving effected in the general expenditure of 
about £85,679 ($416,957) per annum, the amount now suggested does 
not appear to be excessive." 

The result of the Board's refusal to be enlightened was that nothing 
at all was done and the superannuation fund sank deeper and deeper 
into insolvency. 

SECOND TRIENNIAL INVESTIGATION OE SUPERANNUATION 

EUND, 1890. 

When the second triennial investigation of the superannuation 
fund was made at the end of 1890, the " state and sufficiency " of that 
fund was found to be in a very bad way. The actuary on this occa- 
sion was Mr. John B. Trivett, actuary to the Civil Service Board, who 
reported that the insolvent state indicated three years before by Mr. 
Teece was " most distinct and intensified." The condition was much 
worse at this time, because all payments by the Government had 
ceased with the exception of the perpetuity of £3,500 ($17,033). 

INSOLVENT CONDITION OF FUND. 

Mr. Teece, as on December 31, 1887, had estimated the deficiency 
on his valuation of the fund at close to £1,325,706 ($6,451,550). Mr. 
Trivett, on December 31, 1890, estimated it at £1,592,568 ($7,750,234), 
thus showing that the fund was tending in an unsatisfactory condi- 
tion. He reported 419 pensioners drawing from the fund £56,783 
($276,334) per annum, a notable increase over the 174 pensioners 
costing £21,021 ($102,299) reported by Mr. Teece. He brought out 
the intensification of the insolvency in the following comparative 
statement : 

COMPARATIVE STATISTICS RELATING TO THE FUND FOR THE YEARS 1887 AND 1890. 



Date. 


Pen- 
sioners. 


Annui- 
ties. 


Total lia- 
bility. 


Credit of 
fund. 


Balance. 


December 31 , 1887 


174 
419 


$102, 299 
276, 334 


$1,050,064 
2,460,425 


$1,145,754 
1,978,651 


$95,690 credit. 
481,774 debit. 


December 31, 1890 




Increase 


245 


174,035 


1,410,361 


832,897 


577,464 debit. 





'Report of the Civil Service Board of New South Wales, 1889, p. 13. 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



19 



And regarding the prospective pensions, the balance sheet indi- 
cates a deficit of immense proportions. 

The receipts and disbursements during the second triennial period, 
January 1, 1888, to December 31, 1890, showing a balance on hand of 
£406,585 19s. Id. ($1,978,650.54) were given in the following state- 
ment : " 



Receipts. 


Disbursements. 


Balance, being fund at December 31, 
1887 


$1,145,752.13 
194,660.00 

61,098.25 
944,215.85 

131,235.09 

91,060.12 

1,069.51 

239. 57 

193,645.86 


Pensions under Civil Service Act 


8512,761.28 
49, 910. 32 
198,526.53 
13, 127. 71 


Government endowment 


Gratuities 


Transferred from schedule B, Consti- 


Refunds . 




Balance, being fund at December 31, 
1890 




Contributions from officers, current... 


1,978,650.54 


Payment by Goverrmient to meet 
abatements which should have been 
deducted from retrenchment pen- 




Payments by Government of gratui- 
ties to officers compulsorily retired, 








Refunds 














2,752,976.38 


2,752,976.38 



The valuation balance sheet showing an estimated deficiency of 
£1,592,568 10s. lid. ($7,750,234.83) was as follows: 



VALUATION BALANCE SHEET, CIVIL-SERVICE SUPERANNUATION FUND, AS AT 

december 31, 1890. 
Dr. Cb. 



To present value of £3 ,500 ($17,033) per 
annum, being pensions payable to 
18 officers under schedule B of the 
Constitution Act 

To present value of £56,783 6s. 5d. 
($276,336) per annum, being pen- 
sions payable to 419 officers who 
have retired under the provisions of 
the Civil Service Act 

To present value of prospective pen- 
sions to 8,208 officers in the service 
and contributing to the fund at De- 
cember 31, 1890 

To present value of gratuities to offi- 
cers who may retire before having 
served fifteen years, in terms of the 
act 



$121,317.95 

2, 460, 424. 29 

11,810,338.28 

34,065.50 



14, 426, 146. 02 



By amount of civil service fund, De- 
cember 31, 1890 

By present value of future contribu- 
tions of 4 per cent per annum on 
salaries of 8,208 contributors to 
fund at December 31, 1890 , 

By present value of annual contribu- 
tion of £3,500 ($17,033), as pro- 
vided under schedule B of the Con- 
stitution Act , 

By present value of back contribu- 
tions of 4 per cent, on salaries for 
period of service prior to December 
31,1884 

By estimated deficiency 



$1,978,650.54 

3,041,701.68 

425,818.75 



1,229,740.22 
7. 750, 234. 83 



14,426,146.02 



Supplementary Report of the Civil Service Board of New South Wales, 1891, p. 8. 



20 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH W^AX/ES. 



The amounts granted for retiring allowances during the seven years 
since the inception of the Act of 1884 were shown by the accountant 
of the Civil Service Board to be as follows: 

AMOUNT GRANTED FOR PENSIONS FROM 1885 TO 1891, INCLUSIVE, UNDER PROVISIONS 
OF THE SEVERAL SECTIONS OF THE CIVIL SERVICE ACT OP 1884. 

[From Supplementary Report of the Civil Service Board of New South Wales, 1891.] 



Year. 


Section 43. 


Section 44. 


Section 45. 


Section 46. 


Total. 


1885 


SI, 811. 07 
5, 431. 62 
21,856.28 
24,213.76 
21, 325. 00 
20, 932. 89 
12, 278. 50 


S4,560.74 
10,519.12 
9,493.69 
13,244.91 
6, 398. 90 
7,857.21 
6, 482. 18 


S819.28 


S341.39 
610.26 
33,061.30 
9,587.00 
76, 043. 18 
29,628.87 
22, 748. 70 


$7,532.47 


1886 


16,561.00 


1887 


759.17 


65, 170. 44 


1888 


47,045.67 


1889 


339.92 


104,107.01 


1890 


58,418.97 


1891 


1,161.88 


42,671.26 






Total 


107, 849. 12 
18, 783. 47 


58,556.75 
7,219.94 


3,080.25 
1,520.54 


172,020.70 
10, 194. 10 


341,506.82 




37,718.05 








89, 065. 65 


51, 336. 81 


1,559.71 


161, 826. 60 


303,788.77 







CAUSES OF DEFICIENCY OF FUND GIVEN BY ACTUARY TRIVETT. 

The chief reason for the increase of pensioners and the correspond- 
ing growth in the deficit was found by Mr. Trivett to be the same 
reason assigned three years before by Mr. Teece — abolition of offices 
due to a general policy of retrenchment on the part of the Govern- 
ment. Pensions paid to officers thus dismissed had become a charge 
upon the superannuation account to the extent of £32,620 Is. 7d. 
($158,745.59) per annum. Said Mr. Trivett: 

An extraordinary influx of entered-on pensioners has taken place 
during the last four years. Many of these pensioners are in the 
prime of life; 89 of them, or 21 per cent of the entire pension list, 
being under the statutory age of 60 years, and having various terms, 
ranging up to 27 years, to run before they would be legitimately due 
for retirement. No annuity fund, however well-devised theoretically, 
can be expected to sustain such drastic inroads into its resources as 
are indicated in the above statement. 

Appended to the report of the Civil Service Board was a statement 
" showing the approximate loss to the superannuation account in con- 
sequence of the services of officers in the civil service having been dis- 
pensed with for purposes of retrenchment and reorganization before 
they reached the age of 60 years, when, under section 43 of the civil- 
service act, officers have the option of retirement." The first dozen 
cases shown in the table and the totals for the entire table are as 
follows; 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



21 



STATEMENT SHOWING THE APPROXIMATE LOSS TO THE SUPERANNUATION 
ACCOUNT IN CONSEQUENCE OF THE SERVICES OP OFFICERS IN THE CIVIL 
SERVICE HAVING BEEN DISPENSED WITH FOR PURPOSES OF RETRENCH- 
MENT AND REORGANIZATION BEFORE THEY REACHED THE AGE OF 60 
YEARS, WHEN, UNDER SECTION 43 OP THE CIVIL-SERVICE ACT, OFFICERS 
HAVE THE OPTION OP RETIREMENT. 

[From Supplementary Report of the Civil Service Board of New South Wales, 1891.] 







a> 
a 

(1) 




> 
o 
to 

0) 

Si 








aj 03 


O o3 

Is 


,gh the discon- 
eduction from 
and payment 
ching the pre- 
rement. 










.Q 






^B2 

03 ro O 


Is 


s2 

Si's 


OflScer's name. 






03 


03 
Pi 

cs H 








So 


go 


r-< r^ ':j '^ u 

^psas-s 

p 0) 0) O) O 






5^ 


p. 


a 
p 

a 


a 

p 






> 0) 








^ 




PJ 


g 


a 


"^ t- i^ 


P-oj 


m-S 






O) 


-a 
to 




o 
a 

a> 

a 


03 
f-, 

0) 

p. 

1 

S 


a 

03 

0) 

a. 

c3 


sg| 
^?a 

c S £ 


I2 

il 
aa 

o 


[.1 '-1 
'30d5 

»-3 4^ o3 
©"O o 


otal loss to t 
tinuance of 
the salaries 
of their pec 
scribed age 




« 


< 




O 


CLi 


CC 


<l 


H 


H 


&H 


Allan, H. A 


Lands. 




41 


1887. 55 


8566. 95 


81, 532. 95 


81,165.04 


810, 772. 00 


829, 126. 00 


$11,937.04 


Brown, Edward. 


Lands. 




48 


1, 527. 01 


887. 16 


1, 800. 61 


864. 29 


10, 645. 96 


21, 607. 26 


11,510.25 


Cantv, M 


Lands. 




S6 


742. 20 


605. 64 


2,141.26 


2,055.62 


14, 535. 26 


51, 390. 24 


16, 590. 87 


Chisholm,D.H. 


Lands. 




42 


1,095.33 


975.73 


2,676.58 


1,927.13 


17, 563. 20 


48, 178. 35 


19,490.33 


Evans, Thomas . 


Lands. 




42 


1,209.39 


821. 95 


2,141.26 


1, 541. 71 


14,795.13 


38, 542. 68 


16,336.84 


Gerard, Francis. 


Lands. 




38 


840. 75 


780. 83 


2, 384. 59 


2, 098. 43 


14,603.88 


52,490.87 


19,276.69 


Goggin,J. F 


Lands. 




46 


1,275.96 


921.47 


2,384.59 


1,335.37 


12, 900. 60 


33,384.19 


14, 235. 97 


Greaves, W. A. B. 


Lands. 




58 


2,583.50 


1,405.69 


2, 798. 24 


223. 86 


2, 811. 38 


5,596.48 


3,035.24 


Landers, J. P ... 


Lands. 




57 


2,041.62 


1, 398. 63 


2, 676. 58 


321. 19 


4, 195. 90 


8, 029. 73 


4, 517. 09 


Lewis, T. H 


Lands. 




58 


2,761.48 


1,913.51 


3,163.23 


253. 06 


3, 827. 01 


6,326.45 


4,080.07 


Neate,C.E 


Lands. 




58 


1,328.51 


963. 08 


2,043.93 


163. 51 


1,926.16 


4,087.86 


2,089.68 


Newman, T.E.L. 


Lands. 




39 


630.35 


472. 54 


1,654.61 


1,389.87 


9, 923. 28 


34, 746. 81 


11,313.15 


Total entire 






















listo 








93, on. 29 


78,194.25 


182,756.54 


81,07L17 


763,460.84 


2, 027, 753. 75 844. 532. no 










', 



» The above are the first 12 names of the complete list of 96 names. 
84 are omitted. 



The remaining 



The statement closes with the following summary: 

It will thus be seen that, by the Government dispensing with these 
officers, the civil-service superannuation account will sustain a loss 
of £173,539 18s. 4d. ($844,532) by the payment of pensions before the 
prescribed age of 60 years, when officers have the option of retirement, 
and by the discontinuance of the 4 per cent contribution from their 
salaries consequent on retirement, and this amount is exclusive of 
interest which would accrue from year to year. Moreover, this sum 
does not represent the total loss to the account, as many officers over 
60 years of age have been compulsorily retired for purposes of 
retrenchment who would have preferred to continue in the service if 
they had been allowed to exercise the option granted them by sec- 
tion 43. 

l\niile the superannuation account suffers by this retrenchment, the 
Government effects a saving during the same period of £416,676 
($2,027,753.75) in salaries. 



22 CIVIL-SERVICE EETIEEMEISTT IN NEW SOUTH WALES. 

Three other causes given by Mr. Trivett leading to the existing 
condition of the fund were the insufficiency of the contributions, 
the unduly bountiful prospective benefits prescribed under the act, 
and the practice observed when determining the net retiring allow- 
ances of not charging interest on the unpaid back contributions for 
the years prior to 1885 (the year of inception of the act) in reckoning 
the abatement to be deducted from the gross pension, in respect of 
such contributions. 

REMEDIAIi MEASURES RECOMMENDED. 

The remedial measures to deal with these four faulty conditions 
recommended by Mr. Trivett were for the most part the same as those 
suggested by Mr. Teece in 1887. He recommended first, however, 
and with special emphasis, the rigid restriction of the retirement of 
civil officers to cases of superannuation or invalidity only, leaving 
retirement resulting from extraordinary causes, such as wholesale 
retrenchment, to be dealt with by special measures. 

In his opinion, the 4 per cent rate of contribution, though insuffi- 
cient, should not be raised, as a higher rate would press very severely 
on small-salaried men. He believed, however, that there was con- 
siderable scope for amendment in the matter of benefits proposed 
under the act and suggested that computation of the retiring allow- 
ance on the basis of the average instead of the ultimate salary would 
not only be more equitable, but also more economical. Said he: 

Since the receipts from each officer are proportionate to the amount 
of salary year by year throughout his official life, it is but just that 
the basis upon which the retiring allowance is computed should have 
a relation to his total emoluments, and not depend upon the advan- 
tages nor the vicissitudes which might befall him during the last 
three years of his service. For this reason an average salary, deduced 
from his aggregate salary, should be adopted from which to derive 
the amount payable as pension," 

His recommendation to amend the fourth cause of disaster was 
that interest should be charged on the unpaid back contributions of 
4 per cent on salaries for the years antecedent to 1885. Said he : 

The prevailing system of not adding interest on account of these 
unpaid contributions is so opposed to financial usage as to require no 
further argument to insure its condemnation." 

Mr. Trivett called especial attention to the drain on the fimd 
caused through that section of the act which permitted persons in 
certain minor positions to join the fund at any time they saw fit. 

<» Supp]ementary Report of the Civil Service Board of New South Wales, 
1S91, p. 7. 



ClVlL-SEBViCE RETIREMENT IN NEW SOUTH WALES. 23 

The practical result of this provision was, as Mr. Teece had predicted, 
that they only did so a short time before their intended retirement, 
sometimes within a week of leaving the service, a proceeding that 
worked out clearly to the material detriment of the fund, even when 
they paid their arrears, minus interest. 

The chief relief to the fund, Mr. Trivett pointed out, must come 
from the Government. Said he: 

Taking the present circumstances of the fund into account, a sum 
of £60,000 ($291,990) per annum will be necessary to maintain an 
equilibrium. But, if the recommendations I have enunciated be car- 
ried into effect, the conditions will be so greatly improved as to 
require a very small annual grant. The amount then required I can 
not quote with certainty until the results of the proposed treatment 
shall have been ascertained by means of a subsequent investigation, 
conducted, as I should desire, with the aid of the tables referred to 
in the concluding paragraph of this report. <* 

NEED OP ADEQUATE DATA FOR VALUATION OF FUND. 

The paragraph to which he alluded contained a recommendation 
" that steps be taken immediately to procure comprehensive abstracts 
from the records " concerning " data respecting the careers of officials 
prior to the inception of the act." This recommendation is interest- 
ing to all students of retirement plans, for it brings into prominence 
a fact that is soon appreciated by any one who tries to devise an 
equitable contributory plan for a given service. That is the need of 
accurate statistics concerning those already in the service, in order 
that the accrued liabilities may be correctly estimated and kept dis- 
tinct from all future liabilities. Mr. Trivett's valuation balance 
sheet shows the item " present value of back contributions of 4 per 
cent on salaries for periods of service prior to December 31, 1884," 
which is what might be more simply termed the amount payable for 
annuities for back services, or for annuities on services rendered prior 
to the adoption of the plan. Owing to lack of information concern- 
ing the personnel of the service, Mr. Trivett could only determine 
approximately the value of this asset, whereas it should be ascertained 
with all possible precision. The possession of a systematized history 
of the members of the service for which a plan is devised is neces- 
sary if accuracy is desired. " Such information," said Mr. Trivett, 
" would enable us to formulate a local civil service experience, from 
which tables could be derived suitable for our requirements." 

" Suppiemeutary Keport of the Civil Service Board of New South Wales, 
1891, p. 7. 



24 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 

ADVANTAGES OF MAINTAINING FUND AND KEEPING IT SOLVENT. 

Mr, Trivett's view of the situation, despite the face that he felt an 
annual grant of £60,000 ($291,990) immediately necessary to the 
maintenance of the solvency of the fund, was far from being pessi- 
mistic. Said he: 

I feel assured, however, that the vote necessary under the amended 
conditions will be insignificant in comparison with the benefits to be 
derived from the operation of a financially-healthy retiring fund. 
A superannuation fund, if soundly constituted and administered, 
by securing the retirement of officers at an age when their capabilities 
are waning, supplies an admirable aid by which the management of 
the State's concerns can be maintained with a maximum of efficiency. 
A man is most likely to evince zealous application to his duty when 
promotion is assured through the gradual retirement of his seniors, 
caused by the workings of a pension scheme, and when prompted by 
the prospect of obtaining, in due rotation, some provision for his 
closing years. But when the higher officials retain their positions 
beyond the period of usefulness, on account of the absence of a retir- 
ing allowance, the subordinates regard their occupation as temporary, 
pending the opening up of avenues of advancement elsewhere, and 
have very little incentive to qualify for higher responsibilities. 
Hence it is clearly to the advantage of the Government to cooperate 
in maintaining the fund on a solid foundation by contributing a 
yearly subsidy.* 

CONTINUED KELUCTANCE OF CIVIL SERVICE BOARD TO ACCEPT ACTUARY'S 

FINDINGS. 

On this occasion the Civil Service Board seems to have been more 
willing to take the actuarial view point. In commenting on Mr. 
Trivett's report, in a letter sent on April 28, 1892, to the Colonial 
Secretary the Board suggested " that, as by the retirement of officers 
for jDurposes of retrenchment a very large saving has been secured, 
it is but fair that from such yearly saving an adequate amount should 
be set aside to meet the pensions so created." The Board also made 
the following suggestions for the reconstruction of the Act of 1884, 
in its supplementary report for the year 1891, sent to the Governor 
of the colony on November 15, 1892 : * 

(1) That there be a limitation as to the age of persons allowed to 
enter as contributors to the superannuation account (except in special 
cases) . 

(2) That no retirements or pensions be allowed under 60 years of 
age, except under very rigid regulations. 

(3) That a sufficient annual subsidy be granted to assist the fund. 

* Supplementary Report of the Civil Service Board of New South Wales, 
1891, p. 7. 

^ Same report, p. 5. 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 25 

(4) That reorganizations and retrenchment retiring allowances 
should not be a charge on the civil service superannuation account. 

(5) That section 57 shall be so altered that the persons therein re- 
ferred to [minor officials] must become contributors to the fund 
within a limited period or lose their right of option. 

(6) That, in the case of future entrants, service for pension pur- 
poses should count only from the date of contribution to the fund. 

On this occasion, as at the time of the previous investigation, the 
Board complained of the " invidious duty " forced upon it in dispens- 
ing gratuities to widows and children by inclusion of the words " in 
necessitous circumstances " in the law. But this time, instead of ask- 
ing that the bars be let down and the clause be made " general " and 
not limited to those in necessity, they advocated a more rational and 
economical amendment, as follows: "A more equitable arrangement 
than that provided would be that in the case of the death of every 
officer a certain proportion of his contributions should be returned to 
his widow and children." 

They objected, also, to that section of the act which made provision 
for persons accidentally injured in the discharge of their duty, 
saying that " compensation to an officer injured should be a charge 
on the department concerned in his injury " and not on the fund. 

While forced to admit the insolvency of the fund, the Civil Service 
Board was still reluctant to concede any serious unsoundness in the 
retirement plan. In commenting on Mr. Trivett's report, in their 
own report of 1891, they showed their doubt of his conclusions, even 
though those conclusions confirmed those reached by his predecessor^ 
Mr. Teece. Said they: 

That the fund is insolvent from an actuarial point of view there 
can be no doubt, and the condition of insolvency is, in our opinion, 
attributable to a departure from the original intentions of the 
framers of the bill * * *. 

With all respect for the strong and perhaps well-established 
reasons advanced by the actuaries by whom the triennial investiga- 
tions of the fund have been conducted, we are of opinion that a 
return to the principles upon which the bill was first introduced and 
a reconstruction of the act will bring the fund, in the course of a few 
years, into a solvent condition," 

This triennial investigation, like the previous one, resulted in no 
amendments in the law and no practical legislation of any kind. 
There arose a more general and definite feeling of apprehension in 
regard to the state of the superannuation fund, but the recommenda- 
tions of the actuary were not followed. 

« Supplementary Report of the Civil Service Board of New South Wales, 
1891, p. 3. 



26 civil-Service eetiremen"t iisr new sotrTH wales. 

THIRD TRIENNIAL INVESTIGATION OF THE SUPERANNUATION 

FUND, 1893. 

INSOLVENT CONDITION OF FUND EXTREMELY PRONOUNCED. 

As the time for making the third triennial investigation ap- 
proached, the Board began seriously to consider the necessity for a 
very strict examination of the fund. The two previous investiga- 
tions had afforded strong and conclusive evidence that the principles 
upon which the fund was based were totally unsound, and the con- 
demnation of those principles by Mr. Teece, confirmed subsequently 
by Mr. Trivett, together with the accumulated and increasing 
deficiency disclosed by the valuations made, showed that each suc- 
ceeding triennial investigation must add to the difficulties of the 
Board in dealing with the future of the fund. The statement of 
account for the year 1893 showed that the 4 per cent deduction from 
salaries for that year amounted to £67,308 ($327,554) and the pensions 
and gratuities paid under the Civil Service Act amounted to £75,262 
($366,263). These figures proved that the fund was not in a healthy 
condition, and the Board thought it desirable to obtain the opinion 
of a third competent actuary to conduct the third triennial investiga- 
tion, " in order to compare the opinions of gentlemen whose mathe- 
matical training enables them to arrive at conclusions which the 
practical experience of the principles of life assurance has proved to 
be generally correct and unassailable." They accordingly secured 
the services of Mr. T. A. Coghlan, the Government Statistician. Mr. 
Coghlan found that the deficiency on December 31, 1893, had grown 
since the last valuation from £1,592,568 ($7,750,232) to £2,905,199 
($14,138,151). In language more forcible even than that employed 
by his predecessors, he strove to show the deplorable state of affairs 
and to make suggestions for reconstruction on a sound scientific 
basis. Said he: 

, The reports of the actuaries received far less attention at the hands 
of those interested than they deserved, as apart from any question of 
state policy it must have been apparent to contributors that it would 
be a serious thiug if they were compelled to continue paying into a 
fund which had on the best authority been declared to be fast lapsing 
into insolvency, and from which the younger of their number could 
not reasonably hope for benefit, while pensioners could hardly have 
looked with composure on the more serious and immediate loss which 
would befall them in the event of the fund collapsing or their pen- 
sions being largely reduced. The apparent apathy in regard to the 
condition of the fund was due to a lurking belief in the minds of 
many otherwise well-informed persons that actuarial methods, 
though very well in theory, do not usually stand the test of everyday 
experience. It would be idle on my part to argue in support of 



ClVlL-SERViCE EETtREMEiTT IN FEW SOUTH WALES. 



27 



actuarial methods which are nothing if not the embodiment and ap- 
plication of everyday experience, and I mention the matter of the 
distrust exhibited in some quarters as to the correctness, from a busi- 
ness point of view, of the actuarial conclusions, only in order to 
point out that not only is there no cause for such distrust, but that if 
the actuaries erred at all it was by presenting the condition of the 
fund in a too favorable light.* 

THIS VALUATION OF FUND BASED ON MOST EXTENSIVE AND ACCURATE 

DATA. 

Mr. Coghlan's valuation was of necessity, in many respects, the 
most effectual test as yet applied to the fund. Not only had he a 
longer period of experience under observation, but he went to the 
trouble to collect from civil service records and to tabulate all the 
information available concerning the ages, years of service, and 
present and past salaries of all contributors to the fund. This 
great labor was undertaken with a view to defining the average 
salary at each age and the normal rate of increment. The soundness 
of the policy which prompted this arduous preliminary undertak- 
ing — the need of which had been noted three years before by Mr. 
Trivett — is seen when comparison is made of the previous valuation 
balance sheets with that presented by Mr. Coghlan in respect to the 
items " prospective pensions " and " future contributions." The 
striking difference in the values is due almost entirely to the ab- 
sence from previous valuations of any allowance for increase of 
salary. 

Mr. Coghlan's report of receipts and disbursements during the 
period of his investigation, January 1, 1891, to December 31, 1893, 
showed a balance on hand on December 31, 1893, of £488,653 2s. lid. 
($2,378,030.53) as follows:^ 



Receipts. 


Disbursements. 


Balance 


$1,978,650.55 

993. 613. 93 

51,098.25 

800. 26 

345.85 

127,065.59 

42,942.48 

263,194.96 


Pensions, schedule B 


$46 189 47 


Deductions from salaries 




910 113 69 


Transferred from schedule B 


Gratuities 


113,167.37 


Fines 


Refund of 4 per cent deductions, 
made in error 




Gratuity refunded(offlcer reappointed) 


8,157.29 


Back contributions paid by Govern- 


Fines refunded . 


51.46 


ment 


Error credit transferred to Consoli- 
dated Revenue 




Gratuities paid by Government 


2, 002. 06 


Interest 


B alance 


2,378,0.30.53 








3,457,711.87 


3,457,711.87 



« Civil Service Board, New South Wales. (Report on an Actuarial Examination of the 
State and Sufficiency of the Civil Service Superannuation Account.) March 1, 1895, p. 9. 
» Ibid., p. 13. 



28 



CIVIL-SEKVICE E.ETIEE1MENT IN" NEW SOUTH WALES. 



The valuation balance-sheet taken at the close of 1893 showed a 
deficiency of £2,905,199 14s. 8d. ($14,138,154.50) as given below: 

SUPERANNUATION ACCOUNT— VALUATION BALANCE SHEET, DECEMBER 31, 1893. 
Db. ~ Cr. 



To value of existing pensions under 

schedule B 

To value of existing pensions under 
Civil-Service Act, 1884: 

Males $3,208,783.47 

Females 137,710.74 



To value of existing pensions vested 
but not yet entered on, being due 
to contributors of 60 years and over 
on their retirements: 

Males $1,794,045.32 

Females 35,919.05 



To value of prospective pensions not 
yet vested: 

Males $16,181,137.28 

Females 1,015,912.15 



To value of retirement aDowances of 
one month's salary for each year of 
service, which will become payable 
at age 60 to contributors who entered 
the service at 46 and over: 

Males $42,811.96 

Females 2,771.02 



To amount of retirement allowances 
as above, now payable if claimed 
(lives over 60): 

Males $61, 705. 15 

Females 2,150.18 



$123, 962. 77 



3,346,494.21 



1,829,964.37 



17,197,049.43 



45, 582. 98 



63,855.33 



22, 606, 909. 09 



By balance pei Civfl Service Report 
for 1893 , 

By value of £3,500 per aimum from 

Consolidated Revenue , 

By value of back contributions, to 
be made good before pensions are 
entered on: 

Males $989,905.94 

Females 26,497.10 



By value of future contributions: 

Males $4,324,381.63 

Females 324,120.64 



By deficiency. 



$2,378,030.53 
425,818.75 



1,016,403.04 
4,648,502.27 



14, 138, 154. 50 



22,606,909.09 



CAUSES OF DEFICIENCY OF FUND GIVEN BY ACTUARY COGHLAN. 

Mr. Coghlan's report proved conclusively that the Civil Service Act 
of 1884 was a failure. The object of that act was to secure pensions 
to officers on their retirement under certain conditions, and for this 
purpose to establish a fund which would eventually become self-sup- 
porting. This was to be achieved by the payment from the Consoli- 
dated Revenue of a specified grant for a limited number of years and 
the contribution by the civil servants of a fixed percentage of their 
salaries. Mr. Coghlan pointed out that this plan would have been 
perfectly feasible had the fund been established on a solvent basis, 
with a clear knowledge of the original liabilities incurred, had the 
promised benefits been on a scale proportionate to the price paid for 
them, and had no charge been made upon the fund otherwise than in 
accordance with the original plan. He showed how all three of 
these conditions had been violated; how through disregarding the 
operation of compound interest and the life contingencies in calculat- 
ing the liabilities assumed, the fund was saddled with an initial 
liability of little less than £1,000,000 ($4,866,500) ; how benefits and 
contributions were never properly related to one another, the former 
being either too large or the latter too small; and finally how the 



CIVIL-SEEVICE RETIREMENT IN NEW SOUTH WALES. 29 

fund had become " the sport of political necessities," and wholesale 
additions to the pension list been made in furtherance of a retrench- 
ment policy. His conclusion was that " in the main points that make 
for safety the fund is essentially unsound. It came into being over- 
shadowed by an accrued, albeit unperceived debt, and carried the 
seeds of further insolvency in its constitution, while the treatment 
to which it has during its short life been exposed, and which would 
severely try the strongest growth, has only hastened the early demise 
to which it was predestined." 

REMEDIAL MEASURES RECOMMENDED. 

So serious did Mr. Coghlan find the condition of the fund, with a 
deficiency of nearly three million sterling ($14,599,500), which was 
increasing at the rate of £120,000 ($583,980) a year, that he did not 
think any assistance the state could reasonably be expected to afford 
would be of material service at that late day. To remedy conditions 
within lines of the existing act he found the only course open to be a 
reduction of allowances. The extent to which such a reduction would 
have to be made was striking evidence of the hopeless condition of 
the fund. Existing pensions and all prospective pensions would 
need to be reduced by fully 65 per cent in order to bring about a 
condition of solvency. As an alternative Mr. Coghlan suggested the 
following changes in the Civil Service Act, believing that they would 
establish the fund on a sound foundation, and would make 4 per 
cent a safe deduction for all ages under 30 years : * 

(1) That the pension age be postponed from 60 to 65 years, and 
that payments from the fund be restricted to persons who have at- 
tained the pension age or who, through infirmity, are forced to an 
earlier retirement. 

(2) That all payments to persons whose retirement is due to re- 
trenchment or public policy be a charge on the Consolidated Revenue 
until the attainment of 65 years of age, when the fund might take 
over the liability. * * * 

(3) That no person be hereafter admitted as a contributor who 
is above the age of 35 years unless back contributions as from that 
age, with compound interest at 4 per cent, be first secured to the fund. 

(4) That pensions be computed on the average salary for the seven 
years of service previous to retirement.^ * * * 

(5) That no gratuities be paid to the relatives of deceased officers, 
but that the fund grant insurance for limited amounts at pure pre- 
mium rates; premiums to cease at the pension age, and the reserve 

« Civil-Service Board, New South Wales (Report on an Actuarial Examination 
of the State and Sufficiency of the Civil Service Superannuation Account), 
March 1, 1895, p. 12. 

* Mr, Coghlan stated that it would doubtless be more scientific to make the 
average salary for the whole period of service the basis for the pension. 



30 civil-sepat:ce retirement in istew south wales. 

thereon to be returned stiould the insurer retire from the service 
before being pensioned. 

Mr. Coghlan said: 

On the foregoing lines I estimate that the deduction of 4 per cent 
will provide a margin beyond requirements at all ages under 30 years, 
with a possible reduction for male contributors at the lowest ages, 
and for females of all ages. 

The adoption of these reforms would establish the fund on a sound 
foundation. It is true the accumulated deficit would not be entirely 
removed, but it would be reduced to such modest dimensions that 
Parliament might see fit to assist in its gradual extinction by means 
of an annual allowance. 

In conclusion. I would strongly press upon the Board the necessity 
of closing the fimd to new entrants, unless under 3.5 years of age, until 
steps are taken to reform the superannuation system in the direction 
I have indicated, or in some other efficient manner. 

FINAIi RECOGNITIOX BT CIVIL SERVICE BOARD OF INADEQUACY OF PLAN. 

After digesting this last actuarial report, which so strongly con- 
firmed all that the two former actuaries had said, the Civil Service 
Board finally became convinced not only that the fund established 
by the Act of 1884 was insolvent but that the plan itself was unsound. 

Up to this time the Board had been unwilling to concede any serious 
weakness in the principles underlying the Act of 1884. Forced to 
admit the insolvency of the fund, they had still clung to the idea that 
the plan itself was inherently sound and that all would have been well 
but for the acts of the Government in loading up the fund unexpect- 
edly with pensions for officials dispensed with before they had reached 
the retirement age. But in forwarding 'Mr. Coghlan's report to the 
Chief Secretary on March 1, 1895, the Board said: 

The enormous dormant liability so clearly and forcibly illustrated 
in the report furnished by Mr. Teece is made even more apparent by 
the extended experience at the command of Mr. Coghlan. The com- 
plete inadequacy of the original scheme is shown most clearly, and 
the wonder is that the words of warning have been so long neglected." 

Mr. Coghlan's report, confirming all that Mr. Teece and ]\Ir. Triv- 
ett had previously said both as to the insolvency of the fund and the 
structural weakness of the scheme, seems to have finally opened their 
eyes to the true situation. The unfortunate history of the case was 
then well summarized by them in their report to the Chief Secretary. 
Said they: 

There is abundant e\ddence that the fund was established on an 
unscientific basis. The original bill was conceived in a liberal spirit, 

° Civil Service Board, New South Wales (Report on an Actuarial Examina- 
tion of the State and Sufficiency of the Civil Service Sui)erannuation Account), 
March 1, 1895, p. 3. 



CIVIL-SEBTICE £ETrE£ME^-T I>- >"EW SOUTH WALZ5. 31 

and Parliament was prepared to act generoTislr in dealing with the 
measure, bnt the accrued liabilities to officers in the service at the 
time it was passed were not sufficiently prorided for. and the benefits 
conferred by the act were quite out of proportion to the payments 
made to the fund by the officers c<mcemed. It was at first proposed 
that the fund should hare a perpetual endowment of £10.CKK) [SIS,- 
G65] per annum, and an unlimited daim ux)on the Consolidated Eeve- 
nne of the colony, should the amount of the endowment prore in- 
sufficient. The calculations of the advising actuary were made on 
this basis, and the present ccmdition of the fund in no way reflects 
on the advisers of the Government at the time. The bill was after- 
wards shorn of its equitable provisions in reference to its endow- 
ment by the Grovemment, but no commensurate reduction was made 
in the scale of pensions and gratuities, so that the fund was started 
in an overweighted conditicoj. viz. accrued liabilities inadequately 
provided for. and retiring allowances authorized on a scale beyond 
the power of the contributions to provide. Added to this the Govern- 
ment, immediately after the passing of this act. commenced a sys- 
tem of reorganization and retrenchment, by which they made large 
apparent savings of the salaries of officers di=x>en=ed with, but 
charged upon the fund the pensicms of such dispensed-with of- 
fice^ and thereby have imdermined the whole fabric." 

The aspect of the situation that seemed to appeal m<^ strongly 
to the Board was the position of the civil service employees who had 
been contributing fca* years to the fund in the expectation of some 
day reeeiving a pension, and in recommending !Mr. Cc^ilan's report 
to the Chief Secretary ~ for most favorable consideraticm " they em- 
phasized that phase of the problem. Said they: 

The Board are of opinion that the fund has beai Tery unfairly 
treated througJiCHit. Tlie Government have been relieved from the 
payment of silaries to a number of persons it has beei thought de- 
sirable to rsnove from the service, and the fond has afforded a con- 
venieat means by which their removal has be«i effected. It is not too 
nuch to a^nme that in the absence of the fund most of the public 
servants removed would have ronained longer in the service, draw- 
ing annual salaries from the Treasury. 

Taking into consideration the large interests created by the estab- 
lidiment of the fond, the number of pers<ms drawing pensions there- 
from, and the almost entire reliance of a very large number of 
offices upcm the expectation of pensions for which they have long 
contribTited- it would be a cruel and inexpedient proceeding to sweep 
away a fund having invested assets amounting to nearly a half a 
million and an income of more than £90.000 [S437,985] per annum. 

•GtH Service Bc^rd. Xew .Sontl! "Wales CBeport on an Aetna rial Exan- 
Ir^ticm of the State and SaSdeo^ of tLe C:-l? Serrice Snp^aiUMiatkHi 
A-cconnt), Mardi 1, 1S95, pu 7. « 



32 CIVIL-SERVICE EETIREMENT IN NEW SOUTH WALES. 

HESITATION OF GOVERNMENT TO ATTEMPT RECONSTRUCTION OF FUND. 

The Government accepted the conclusion of Mr. Coghlan that a 
reduction of 65 per cent of allowances was practically repudiation of 
its contract with the civil servants, and that such repudiation would 
be wrong, but it was not willing to take the steps for reconstruction 
of the fund declared by Mr. Coghlan to be necessary, if a sound con- 
tributory plan of retirement was to be maintained. The legislation 
that resulted from this third triennial investigation, therefore, was 
merely a recognition of the fact that the fund was doomed and an 
attempt to prevent further increases in the deficiency. This legis- 
lation took the form of the Public Service Act of 1895. 

PUBLIC SERVICE ACT OF 1895. 

OPTION or DISCONTINUING PAYMENTS ALLOWED CONTRIBUTOIIS. 

Part V of the Public Service Act of 1895, having to do with pen- 
sions and gratuities, made a complete change in the system of grant- 
ing retiring allowances. The option was given contributors of dis- 
continuing their payments to the fund on giving notice to that effect 
within a period of twelve months after the passage of the act. Their 
interest in the fund ceased thereupon save in respect to their previous 
payments, the return of which, improved at 3 per cent interest, was 
to be granted at the termination of their official lives or at death if 
it occurred before retirement. In lieu of a pension those who ceased 
to contribute to the fund received, besides return of their contribu- 
tions with interest, a gratuity of one month's pay for each year of 
service, based on the average salary during the whole term of employ- 
ment. Liability with respect to these gratuities was transferred to 
the Government. Their original pension privileges were preserved 
to those who had not availed themselves of the right of discontinuing 
their contributions. Finally the fund was divested of its continu- 
ing principle, the term of its existence being confined to the lives of 
the current contributors. No pensions were to be paid to officers 
appointed after the commencement of the act. No new entrants to 
the service were allowed to contribute to the fund, but they were 
required to assure their lives according to stated conditions. This 
was the only provision in the act looking toward the solution of the 
original problem of superannuation. 

ENDOWMENT ASSURANCE REQUIRED OF NEW ENTRANTS. 

It seems not unreasonable to suppose that this provision sprang 
from Mr. Coghlan's recommendation, previously cited, that " no gra- 
tuities be paid to the relatives of deceased officers, but that the fund 
grant insurance for limited amounts at pure premium rates; pre- 



CIVIL-SEKVICE KETIREMENT IN NEW SOUTH WALES. 33 

miums to cease at the pension age, and the reserve thereon to be re- 
turned should the insurer retire from the service before being pen- 
sioned." This plan was regarded with favor by the Civil Service 
Board. In transmitting Mr. Coghlan's report to the Chief Secretary, 
they said : 

The proposal to substitute a plan of insurance in place of the 
present objectionable system of gratuities is worthy of careful con-, 
sideration. Policies at pure premium rates would cost very little, 
the amount assured need not in any case be great, and it could be 
made to var}^ with increases of salary. It would also be possible 
to conduct this new feature of business in connection with the fund 
by accepting the policies of members assured in public companies in 
lieu of extra payments to the fund, with a condition that any such 
policies should not be impoverished by obtaining loans or advances 
of any kind or be subject to assignment." 

The endowment assurance which the new entrant was required to 
effect on his life was for alternative benefits : A lump sum in case of 
death or an annuity in case he lived to reach the age of 60. The sec- 
tion in the Act of 1895 (now consolidated with other enactments into 
the Public Service Act of 1902) which made this provision reads as 
follows : 

No probationer shall have his appointment confirmed until he shall 
have effected with some life assurance company carrying on business 
in New South Wales an assurance on his life providing for the 
pa3'ment of a sum of money at his death, or at the age of sixty, which- 
ever event shall first happen. Such insurance shall be continued and 
the amount thereof fixed and increased from time to time in accord- 
ance with regulations made as herein provided in that behalf, and 
no policy of insurance so effected shall during the time such person 
remains in the public service be assignable either at law or in equity, 
and the property and interest under such policy of the person in- 
sured shall during the time aforesaid be wholly exempt from the 
operation of any laws now or hereafter to be in force relating to 
bankruptcy, and shall not be liable to be seized, levied upon, or sold, 
upon, by, or under any legal process: Provided. That if such person 
shall be unable to insure his life, or shall be unable to insure his life 
without a loading of five years or more being made upon his age, and 
in such latter case shall be unwilling to insure his life, he shall not 
thereby be disqualified for appointment or promotion, but a pre- 
scribed deduction shall be made at prescribed times from such per- 
son's salary, which deductions shall be invested and accumulated in 
the prescribed manner, and such accumulations shall be protected as 
hereinbefore provided with respect to policies of insurance, and shall 
be paid in full, without any deduction, and with all interest accumu- 
lated thereon, to such person on his leaving the public service, or to 
his representatives on his death, whichever shall first happen. 

''Civil Service Board, New South Wales (Report on an Actuarial Examina- 
tion of the State and Sufficiency of the Civil Service Superannuation Account), 
March 1, 1895, p. 6. 

S D— 61-2— Vol 59 24 



54 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 

This provision is so like the compulsory insurance requirement 
imposed on members of the civil service in New Zealand by passage 
of the Civil Service Insurance Act of 1893, that it seems likely that 
the one was fashioned in imitation of the other. The New Zealand 
measure was soon found inadequate as a retirement provision for the 
civil service, and was superseded by a more satisfactory scheme of 
retirement, though many members of the service continue, voluntarily, 
to keep up their insurance also. New South Wales has not yet fol- 
lowed the example of its neighbor in making the insurance voluntary 
and purely supplementary to an adequate scheme of retirement. 

In one important respect the provision for compulsory insurance 
would seem to have a tendency to raise the standard of efficiency 
among members of a service. No physical examination was required 
for entrance into the public service under the Civil Service Act of 
1884, but the Public Service Act of 1895 provided for " a preliminary 
jaiedical examination as to the health of the candidates." The fol- 
lowing medical certificate must be satisfactorily filled out before the 
candidate is allowed to submit himself to tests as to acquirements and 
efficiency. 

PUBLIC SERVICE BOARD, NEW SOUTH WALES. 

(59 Vic, No. 25, sec. 22.) 

(Address) . 

(Date) 



I HEREBY DECLARE that on this day of in the yenr I care- 
fully examined , aged , a candidate for the position of . 

I find that the said (a) ['• is " or " is not "] in 

sound general health; (b) ["is" or "is not"] below the standards 

of height, weight, chest measurement, respiratory capacity, and general develop- 
ment proper to persons of apparent age ; (c) [" is " or " is not "] 

free from deformities; (d) ["is" or "is not"] in possession of nor- 

Hial vision; (e) ["is" or "is not"] in possession of correct color 

Tision. 

Special or explanatory remarks: . 

I am of opinion that the said is free from any defect 

which would render unfit for admission to the public service, or prevent 

ae satisfactory discharge of the duties of the position for which applies. 

Legally qualified medical practitioner. 
The Chief Medical Officer of the Government, Sydney, 

rOURTH ACTUARIAL VALUATION OF THE SUPERANNUATION 

FUND, 1897. 

DEFICIENCY IN SUPERANNUATION FUND FOUND REDUCED. 

The effect of the Act of 1895 was, as expected, to reduce the de- 
ficiency of the fund. A valuation as on December 31, 1897, was 
■lade by Mr. Trivett under the altered conditions, and showed that 
Ifce deficiency had been reduced from £2,905,200 ($14,138,156), ac- 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



35 



cording to Mr. Coghlan's valuation on December 31, 1893, to £1,344,541 
($6,543,209), or by the large sum of £1,560,659 ($7,594,947). 

The following statement of receipts and disbursements between 
January 1, 1894, and December 31, 1897, showed a balance of £420,648 
15s. lOd. ($2,047,087.35) : • 



Receipts. 


Disbursements. 




$2,331,008.65 

1,010,185.90 

76,ti47.38 

386, 575. 09 

2,683.69 

115, 476. 06 
43, 437. 12 
2, 600. 58 


Pensions under Civil Service Act 


$1,596,688.73 
65,714.54 
105 469 42 


Ded uc tions from salaries 


Sched ule B , appropriations 


Gratuities 




Refunds 


153,654 43 




Balance, December 31, 1897 

Total 




Back contributions paid by Govern- 




Gratuities paid by Government 


2,047,087.35 




Total 


3,968,614.47 


3,968,614.47 







The valuation balance sheet showing the estimated deficiency of 
£1,344,541 6s. lid. ($6,543,210.46) was as follows: 



CIVIL-SERVICE SUPERANUATION FUND, VALUATION BALANCE SHEET 
DECEMBER 31, 1897. 



De. 



Ce. 



Present value of £93,454 15s. ($454,- 
797.54) per annum, being pensions 
entered on by 735 officers who have 
retired under the provisions of the 
Civil riervice Act of 1884 

Present value of £3,499 15s. 7d. ($17,- 
031.68) per annum, being pensions 
entered on by 15 officers who have 
retired under Schedule B, Constitu- 
tion Act 

Present value of prospective pensions 
to 2,630 persons who were contribut- 
ing to the fund December 31, 1897. . . 

Present value of amount to be refund- 
ed at retirement to 5.829 persons who 
have ceased contributing, in accord- 
ance with the provisions of section 
62, Public Service Act 



$3,605,962.03 



104,230.68 



5,767,730.26 



933,848.85 



10,411,77L82 



Amount of civil service fund Decem- 
ber 31, 1897 

Present value of £3,500 ($17,033) per 
annum, authorized by the Consti- 
tution Act 

Present value of future contribu- 
tions of 4 per cent per annum from 
salaries ofcontriliutors to the fund 
December 31, 1897 

Present value of unpaid contribu- 
tions of 4 per cent per annum 
from salaries, for period from date 
of entry to date of inception of civil 
service fund, available only at offi- 
cers' retirement 

Estimated deficiency 



$2,047,087.35 
425,818.75 

1,186,087.10 



209,568.16 
6,543,210.46 



10,411,771.82 



This reduction in the deficiency was undoubtedly due to the opera- 
tion of the new act, under which 5,829 past contributors to the fund 
out of 9,593 gave up their prospective benefits to secure exemption 
from further contributions and a refund of the contributions already 
made bv them with interest. 



OPTION OF DISCONTINUING CONTRIBUTIONS NOT EXERCISED BY OLDER 

EMPLOYEES. 

It was a matter of surprise to many that the deficiency in the 
fund was still so large. The withdrawal of 5,829 persons from par- 
ticipation in the benefits of the fund removed a great load of liability, 



" The Civil Service Superanuuation Account, Nevp South Wales. 
Report on the Condition of, on Dec. 31, 1897, p. 8.) 



(Actuarial 



36 



CIVIL-SERVICE BETIREMENT IN NEW SOUTH WALES. 



but on the other hand few of the older officials ceased contributing 
and there was no considerable number of withdrawals by officers 
holding responsible positions and in receipt of large salaries. It is 
interesting to note that the right of ceasing to contribute was exer- 
cised by officers in the manner that would naturally have been ex- 
pected. Young men with a long period to run before arrival at the 
pension age, and with an admittedly insolvent fund as their pros- 
pective means of support, together with those of all ages whose 
physical condition gave slender expectation of participating to any 
great extent, if at all, in the benefits of a retiring allowance, at once 
seized the opportunity of securing something tangible in the promised 
return of their contributions, and the women, as was fully expected, 
retired from the fund in great numbers, only 12 per cent remaining. 
On the other hand, the older officers, having long service behind them, 
and thereby heavier claims in respect to pension rights, together with 
those of middle age and sound constitution, having fair propects of 
advancement, adhered to the fund. The average age of those who 
adhered was 44 years and their average length of service eighteen 
years. 

The extent to which the privilege of withdrawal was accepted as 
regards persons still in the service on December 31, 1897, was shown 
bv Mr. Trivett in the following statement : 





Contributors. 


Noncontributors. 


Whole service. 




Aver- 
age age 
(years). 


N um- 
ber. 


Per 

cent. 


Aver- 
age age 
(years). 


Niun- 
ber. 


Per 

cent. 


.\ver- 
age ag'" 
years) 


Num- 
ber. 


Per 

cent. 


General: 


44 
42 
42 


1,825 
241 
564 


32 
12 
71 


33 
28 
35 


3,887 

1, 716 

226 


68 
88 
29 


36 
30 
40 


5,712 

1,957 

790 


100 




100 




100 








43J- 


2,(530 


31 


31?. 


5,829 


69 


35 


8,459 


100 



EXHAUSTION OF SUPERANNUATION FUND INEVITABLE WITHOUT OUTSIDE 

HELP. 

Although the legislation of 1895 had resulted in a reduction of 
the deficiency of the fund, it offered no hope of making it solvent. 
The fund was bound to become exhausted in time unless some new 
source of supply was opened up. While the law of 1895 was helpful 
in stopping the constant growth of obligations toward new entrants, 
the withdrawal of officers under it had reduced the annual income 
from £67,000 ($326,055) to £21,000 ($102,197). At the same time, 
the pension rate per annum had not decreased and would not do so 
for many years, since the older officers had maintained their con- 



CIVIL-SERVICE BETIREMENT IN" NEW SOUTH WALES. 37 

nection with the fund in large proportions and would consequentlj^ 
supply a steady stream of annual entrants to the pension list almost 
equal in volume to what would be experienced if no right of with- 
drawal had been offered to their particular age classes. Until, 
therefore, the influx of claimants on the fund proceeding from this 
body of contributors of almost normal strength had ceased, very little 
diminution in the annual payments could be expected. It was ap- 
parent that unless help came the time was sure to arrive when there 
would be no more money in the treasury of the fund, and a large 
body of pensioners waiting vainly to be paid as usual. 

POSSIBLE METHODS OF RESUSCITATING FUND SUGGESTED. 

Mr. Trivett considered the question of what could be done. Said he : 

In the case of a pension fund, where the valuation reveals a de- 
ficiency of moderate proportions, the leeway may be overtaken by 
increasing the contributions, by diminishing the benefits, or by a 
combination of both methods. 

In the present case, however, the deficiency amounts to nearly 63 
per cent of the total obligations; or, in other words, the assets are 
equal to little more than one-third of the liabilities, and in such 
an extremity it would be unreasonable to expect more than a slight 
degree of improvement by applying the methods available for the 
adjustment of slight deficits. The conclusion is, therefore, most 
plain that extraneous support must be supplied, otherwise liquidation 
with its attendant privation to at least 743 helpless beings already 
retired is our only option. 

The only possible extraneous source of aid is the Consolidated 
Revenue. * * * 

But the fund being in so parlous a condition, the beneficiaries must 
be expected to assist in the buoying-up process by submitting to a re- 
duction in their benefits.'* 

Mr. Trivett then made the following statement of possible read- 
justments through a combination of subsidy and reduction : « 

No reduction, a subsidy of $377,154 per annum necessary. 
10 per ceuL, a subsidy of $323,622 per annum necessary. 
15 per cent, a subsidy of $296,856 per annum necessary. 
20 per cent, a subsidy of $270,091 per annum necessary. 
25 per cent, a subsidy of $243,325 per annum necessary. 

The possibilities thus outlined for the continuance of the fund did 
not seem to appeal to the Civil Service Board. In transmitting Mr. 
Trivett's report to the Governor of the colony on June 21, 1898, they 
stated that they were definitely of opinion that no scheme worthy of 
the attention of the Government could be devised which included an 
increase in contribution rates or reduction in the pension scale. 

» The Civil Service Superannuation Account, New South Wales (Actuarial 
Report on the Condition of, December 31, 1897). 



38 CrVIL-SERVICE EETIREMENT IN NEW SOUTH WALES. 

They recommended, therefore, that the sum to the credit of the 
superannuation account should be divided into three portions. The 
sum of £191,893 ($933,847), representing the interests of persons who 
have ceased to contribute, should be set aside to meet the payments to 
be made to such persons and the balance of the fund be divided be- 
tween the general service and the railway service, the deficiencies to 
be met by annual endowments until the whole obligation was dis- 
charged. They thought it inadvisable to make any attempt to set the 
existing scheme on its feet. Said they : 

We have given a great deal of thought to the question of the possi- 
bility of resuscitating the superannuation fund, because it is plain 
to us that some sort of a superannuation system must always exist. 
If old and invalid officers are not given a retiring allowance by the 
direct provision of Parliament the custom which formerly existed 
of retaining officers long after their period of usefulness is past will 
again come into vogue, to the detriment of the service and the dis- 
satisfaction of the younger officers. But we do not see any hope of 
saving the existing system, and a careful investigation has convinced 
us that the best course was adopted when the legislature closed the 
fund to new entrants and allowed all who wished to cease contribut- 
ing. The question of what must take the place of the superannuation 
fund for persons who are now joining the service under the competi- 
tive system is, fortunately, not pressing, and as a new service is 
practically being created [through reorganization and retrenchment], 
we do not anticipate that there will be any formidable difficulties to 
be overcome in arranging a scheme of retiring allowance, just to the 
State and acceptable to the public servants.** 

The above paragraph was written on June 21, 1898, but down to 
the present time no such " just and acceptable scheme " has been 
adopted. It seems strange that they did not realize that the very 
time to create a superannuation scheme, economically and advan- 
tageously, was while a practically new service was being created, 
since it could come into being then unhampered by a load of accrued 
liabilities. Their general point of view as to treatment of the old 
fund prevailed with the Government, which made no attempt to 
revive the old fund or to create a new one, but simply assumed all 
obligations toward pensioners when the fund became exhausted 
in 1903. 

FIFTH ACTUARIAL VALUATION OF THE SUPERANNUATION FUND, 

1901. 

The fifth and last actuarial valuation of New South Wales's 
superannuation fund was made by Mr. Trivett three and a half years 
after the previous one. The statement covering receipts and expendi- 

° The Civil Service Superannuation Account, New South Wales (Actuarial 
Report on the Condition of, December 31, 1897), p. 5. 



CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 



39 



tures for the period January 1, 1885, to June 30, 1901, showed a bal- 
ance on June 30, 1901, of £180,127 18s. 9d. ($876,592.61) as follows:" 



Receipts. 


Disbursements. 


Government endowment 


$486,650.00 
281,040.38 

4,253,577.63 

1,103,655.23 

5,513.72 

654,592.69 
2, 530. 03 


Pensions, schedule B 


$261,815.94 

4,771,268.19 

559 805 40 


Transfers, schedule B 


Pensions, Civil Service Act 


Contributions by officers, being 4 per 


Gratuities 


cent on salaries 


Refunds to e.x-contributors, under 
Public Service Act 




Interest 


284,173.79 

33, 903. 75 

876, 592. 61 


Fines 




Transfers from Consolidated Revenue 


Balance, June 30, 1901 


fund 




Sundries 










6,787,559.68 


6,787,559.68 



DEFICIENCY IN SUPERANNUATION FUND STILL LARGE. 

The valuation balance sheet showing the present value of the 
deficiency on the same date to be £1,761,075 7s. lOd. ($8,570,273.39) 
was as follows: 



CIVIL SERVICE SUPERANNUATION FUND— VALUATION BALANCE SHEET AS AT 

JUNE 30, 1901. 



Dr. 



Cb. 



To pensions entered on by 807 males 
for £99,049 10s. (S482,024.39) per an- 
num 

To pensions entered on by 61 females 
for £3,713 5s. ($18,070.53) per annum 

To pensions entered on by 14 persons 
for £3,255 2s. ($15,840.94) per annum 
under schedule B, Constitution Act. 

To pensions assigned to 14 persons for 
£2,232 6s. (S10,863.49) per annum, 
but not yet entered on , 

To orospective pensions to 2,048 males 
still in service for a probable amount 
of £396,879 12s. ($1,931,414.57) per 
annum 

To prospective pensions to 197 fe- 
males still in service for a probable 
amount of £15,027 10s. ($73,129.10) 
per annum 

To prospective gratuities to persons of 
less service than would entitle to 
pension rights, nil 

To refund of contributions to 5,144 per- 
sons who have ceased contriljuting 
to the fund, in the amount of 
£261,762 Os. 2d. ($1,273,864.81), due 
at various periods on death or at re- 
tirement , 



S3, 638, 799. 33 
158, 880. 70 

84, 755. 31 

71,512.59 

6, 169, 741. 44 



941,850.65 



11,309,868.33 



By fund as at June 30, 1901 

By value of future contributions of 4 
per cent on salaries of 2,048 males 
still in service 

By value of future contributions of 4 
per cent on salaries of 197 females 
still in service ■. 

By value of annual rate of £3,500 
($17,033) , as provided under sched- 
B of Constitution Act 

By value of abatement on prospec- 
tive pensions in respect of unpaid 
4 per cent on salaries for period 
prior to passing of Civil Service 
Act of 1884, being £99,209 16s, due 
at various dates of retirement 

By balance, being present Palue of 
deficiency as at June 30, 1901 



$876,592.61 

1, 109, 223. 82 

48, 173. 4S 

425,818.75 



279,786.28 
8, 570, 273. 39 



11,309,868.3* 



"Public Service Boanl. New South Wales (Supplement to Sixth Annual Report, with Ul 
Appendix relating to the Superannuation Account), November 1, 1902, p. 15. 



40 



CIVIL-SERVICE RETIREMElSrT IN NEW SOUTH WALES. 



Mr. Trivett's report, on this final occasion, was a very exhaastive 
document. His summary of all pensions granted since the inception 
of the act was as follows : 



SUMMARY OF ALL PENSIONS GRANTED FROM JANUARY 1, 18S5, TO JUNE 30, 189L 

[From Supplement to Sixth Annual Report, relating to the Superannuation Account, Public Service 

Board, New South Wales.] 





Pensions granted per annum under provisions of Civil Service Act, 1884— 


Year of re- 
tirement. 


Section 43. 


Section 44. 


Section 45. 


Section 46. 




Number. 


Amount. 


Number. 


Amount. 


Number. ■ Amount. 


Number. 


Amount. 


1885 


8 

22 
44 
39 
33 
29 
22 
20 
48 
31 
36 
113 
27 
40 
20 
35 
35 


$1,846.11 
6,181.43 
22, 384. t8 
25, 4..0. 56 
19,341.42 
19,088.65 
12,971.90 
9,858.31 
24, 678. 75 
15, 778. 41 
21,078.03 
78, 517. 57 
]7,09;i.26 
18, 855. 26 
11.011.67 
21,358.34 
20, 820. 10 


8 
32 

7 
19 
18 
13 
20 
13 
17 

4 
14 
13 

6 

8 
11 

7 

5 


$4, 560. 40 
19,344.34 
2,602.12 
11,930.22 
5, 598, IS 
7,301.94 
9,607.93 
6,7i4.i.S 
7,02,!. 25 
4, 9, 12 

4, S45. 82 

5. TJl. 38 
3,3SS 30 
5, 081. 85 
3,800.98 
2,295.-53 
3,305.57 


2 S814. 41 


1 

1 

38 


$341. 38 


18S6 


610 26 


18S7 


1 I 759.17 


.?1 . 7,81 41 


1883 


7 8, 403. 96 
79 71,t80. 38 


3889 


1 


339. 92 


1890 


43 1 ''n 758 Ifi 


1891 


2 
4 
5 
3 
5 
3 
6 
8 
4 
3 
2 


1, 161. 88 
1,977.99 
2, 697. 99- 
1,129.51 
3, 3.53. 99 
893. 98 
1,930.05 
2,379-23 
1,777.73 
1,310.79 
1,321.26 


41 

28 

39 

21 

■ 16 

15 

5 

3 

1 

4 

2 


25,714 58 


1892 


15, 680. 10 


389.3 

1894 


24, 489. 20 
22, 967. 45 


189.5 


11 312 18 


1896 


11,401.72 


1897 


4, 334. 35 


1898 

1899 


2, 592, 87 
34S 20 


1900 


7,522.39 
2, 027. 38 


1901 






Total. . 


602 


348, 307. 45 215 


107,314.61 


49 


21,847.90 


344 270, 965. 97 



The following detailed revenue account for the entire life of the 
superannuation fund down to the last valuation was among the 
returns offered by Mr. Trivett : 

DETAILED STATEMENT OF REVENUE AND EXPENDITURE, JANUARY 1, 1885, TO JUNE 
30, 1901, OF THE NEW SOUTH WALES SUPERANNUATION FUND. 

(From Supplement to Sixth Annual Report relating to the Superannuation Account, Public Service Board, 

New South Wales.] 



Year. 



Revenue. 



Balance 
nrought 
forward. 



En- 
dow- 
ment 
from 
Gov- 
ern- 
ment. 



Tran«;fpr >-0""'" 

Sf ^^;;irS interest. 
"°" ^- of salaries. 



Fines. 



Transfers 
from Con- 
solidated 
Revenue 
Fund. 



Sun- 
dries. 



Total. 



1885 

1886 

1887 

1888 

1889 

1890 

1891 

1892 

1893 

1894 

1895 (half 

year).., 

1895-96 . . , 

1896-97.., 



1899-1900 
1900-1901 



Total. 



$342, 871. 85 
728, 828. 37 
1,124,094.08 
l,429,8u4, 73 
1,762,2,53.15 
1,940,02.5.91 
2, 108, 455. 82 
2, 259, 889. 53 
2, 331, 008. 65 

2,406,864.48 
2,483,727.16 
2,521,191.98 
2,190,891.30 
1,882,905.89 
1,600,67.5.09 
1, 230, 585. 65 



, 330 $17, 032. 75 $246, 3.50. 24 



97, 330 
97,330 
97, 330 
97, 330 



17, 032. 
17,032.75. 
17,032,75 
17,032.75 
17,0.',2, 75' 
17,0!2. 75 
17, 0.j2. 75 
17,032.75 
17, 032. 75 

8, 516. 38' 
17,0.32.75 
17, 032. 75 
17,032.75; 
17,032.75! 
17,032.751 
17,032.75 



309,6t,0. 14 
313,6r;6. 12i 
313, 003. 22j 
313,027.76] 
318, 124. 04] 
328. 2 ,7. 83! 
337. 785. 371 
327,. 5.57. 08i 
319,294.84i 

157, 872. 99 
325, 8i .6. 11 
155, 879. 73 
123, 147. 09 
127, 707. 79 
122, 5.50. 15 
113,817.14 



937. 22 
975. 77 
503. 59 
723. 64 
481. 87 
504. 18 
629. 20 
045. 13 
905. 55 
076. 18 



$29.5. .39 , 

363. 77 

" 319. 73 .■^79,880. 
378, 7<. l.\7.;4 
381. 1,1 i:-;,'.. ].".- 
370.40 7-.U7.;!. 
392. .50 78,889. 
30.5. .55: 66,491. 
105.85 20,887. 
398.32} 61,950. 



48. 404. 42 
99,347.63 
99, 515. 18 
87, 859. 00 
75, .590. 33 
64,000.031 
49, 156. 25 



7.58. 04i 67,933.70 
962.07' 31.056.16' 
396. 86' 



4, 705. 421 



18,977.04 



$36,3,94.5.60 
$34. 07 783, 2i 8. 35 
154 9il,2i8,7i5. 81 
157. 82 1, 615, 454. .59 
39.09 2,052,773.28 
75. 92 2, 239, 433. 85 
376.26 2,447,1.14.29 

2.615,115.97 

2, 716, 378. 22 

150.15 2,823,911.84 

84. 35 2, 690, 416. 36 

2,9.57,991,88 

2, 794, 498. 1,5 

27. 33 2, 418, 9.'.7. 47 

2,107,942.18 

466.25 1,804.724,27 
963.87,1,430,532.70 



486, 650,281, 040. 38 4, 253, 577. 641 1, 103, 655. 23, .5, 513. 72.654, 592. 67 2, 530. 03 



CIVIL.-SEIIVICE RETIREMENT IN NEW SOUTH WALES. 



41 



D-ETAILED STATEMENT OF REVENUE, ETC. — Continued. 



Year. 



Expenditure. 



Pensions, 
Schedule B 



Pensions, 

Civil Service 

Act. 



Gratuities. 



Refund of 
contribu- 
tions under 
section 02, 

Public 
Service Act 

of 1895. 



Sundries. 



Balance. 



Total. 



1885 

1886 

1887 

ISSS 

1889 

1890 

1891 

1892 

1893 

1894 

1895 (lialf 

vear) 

1895-90 

1896-97 

1897-98 

1898-99 

1S99-1900.. 
1900-1901.. 

Total.... 



$12,341.06 
13, 749. 47 
14, 697. 88 
16, 942. 19 
16, 628. 48 
16, 339. 64 
16, 905. 31 
15, 765. 03 
13,284.06 
10, 750. 39 

7, 755. 05 
15, 844. 47 
17,031.90 
16, 848. 31 
17,031.84 
17,031.84 
16, 869. 01 



SI, 188. 14 
13,591.73 
44, 506. 92 
107,086.12 
169,321.05 
236, 384. 54 
275, 445. 91 
306, 650. 23 
328, 325. 78 
363, 384. 57 

183, 055. 91 
375, 221. 28 
446, 266. 47 
455,320.46 
452, 8(12. 44 
520, 280. 41 
492, 370. 25 



SO, 889. 34 
26, 407. 80 
85, 144. 14 
50,851.09 
104, 023. 99 
43,051.45 
44, 566. 92 
30, 589. 48 
38, 010. 95 
36, 248. 73 

15,852.02 
40, 373. 98 
11,065.83 
2, 953. 42 
7, 153. 06 
6,437.61 
9,585.56 



201,815.93 



4, 771, 208. 21 



$127, 840. 04 
60, 830. 60 
30, 154. 76 
30, 243. 27 
35, 105. 13 



$655. 21 

690. 98 

272. 79 

10, 710. 46 

546. 61 

3, 032. 31 

2, 240. 33 

2,221.70 

5, 748. 78 

681. 67 

26.22 

5, 3G0. 17 

1,40.3.11 

98.79 

64.99 

145. 49 

4.14 



$342, 871. 85 
728, 828. 37 

al, 124, 093. 59 
1, 429, 864. 73 
1,762,253.15 
1, 940, 025. 91 
2,108,4.55.82 
2, 259, 889. 53 

i 2,331,008.65 
2, 406, 846. 48 

2,483,727.16 
2,521,191.98 
2,190.891.30 
1,882,905.89 
1, 600, 675. 09 
1, 230, 5S5. 65 
876, 592. 61 



559,805.37 284,173.80 | 33,903.75 



S363, 945. 60 
783, 268. 35 
6 1,268,715.81 
1,615,454.59 
2, 052, 773. 28 
2, 239, 433. 85 
2, 447, 614. 29 
2,615,115.97 
2,716,378.22 
2,823,911.84 

2,690,416.36 
2, 957, 991. 88 
2, 794, 498. 65 
2,418.957.47 
2, 107, 942. 18 
1,804,724.27 
1,430,532.70 



o See under revenue, balance brought forward for the year 1888. 

b This total is 2 shillings (49 cents) more than the sum of the equivalent items as they appear in the 
printed official report. 

EXHAUSTIVE DISCUSSION OF CAUSES RESPONSIBLE FOR FAILURE OF FUND. 



Mr. Trivett's discussion of the causes which operated to bring about 
the failure of the fund and the principles which should underlie a 
jDerfectly safe scheme of superannuation makes verj^ instructive and 
interesting reading. Said he : 

The present report relates to what will probably be the last investi- 
gation which will be made into the affairs of this fund, since the 
assets have dwindled to so low an amount as to bring the elfective 
re.sources of the fund within easily measurable distance of extinc- 
tion in point of time, and, therefore, to demand immediate sustenta- 
tion measures to enable the claims of pensioners to be met. 

In view of this crisis it seems befitting that a review of the opera- 
tions of the fund from its inception to the date of valuation should 
be made and i^resented, so that a complete knowledge of the system 
of superannuation now so disastrously disappearing may be readily 
obtained, and po-sibly some valuable information presented in a suc- 
cinct form for use in any future measure respecting retiring allow- 
ances.*' 

He then went on to show how the fund was started on a basis which 
carried failure from its very inception. It was established with a 
liability on account of the civil service as it then existed, which the 

"Public Service Board, New South Wales (Supplement to Sixth Annual 
Report relating to the superannuation account), November 1, 1902, p. 4. 



42 CIVIL-SERVICE EETIREMENT IN NEW SOUTH WALES. 

government endowment of £100,000 ($486,650) was utterly unable to 
meet. In the second place, the fund was used for purposes such as 
that of retrenchment and gratuities to relatives, which have no proper 
place in a superannuation scheme, and which should never be per- 
mitted in any scheme in which solvency is seriously regarded. He 
denounced the provision for the retirement of an officer in case of the 
abolition of his office as " entirely beyond the scope of any pension 
system where solvency is in the remotest degree entertained, unless 
extraordinary subventions are granted concurrently with the imposi- 
tion of the burden arising from each pension thus prematurely cre- 
ated." He computed the amount paid away to pensioners of this 
class, to valuation date, as at least £430,000 ($2,092,595), or nearly 
half the total pension payments, which had been £980,431 ($4,771,- 
267). The premature payment of these pensions, added to the 
lost contributions of such retired officers, discounted the revenues of 
the fund in a large measure. Finally, Mr. Trivett found that the 
payment of gratuities to persons who had not served sufficiently long 
to acquire pension rights had been a severe drain on the fund. This 
system of gratuities he declared " a fatal flaw in any scheme of super- 
annuation, since the receipts by way of contribution can never be 
equal by accumulation to the payment to the gratuitant, imless under 
the very exceptional condition of a large reduction in salary from 
that receivable in the early years of service." 

The Act of 1884, according to Mr. Trivett, had fulfilled in an admi- 
rable manner the chief and true requirement of any pension system; 
that is, retirement for the aged. In that respect it was satisfactory. 
It had conferred untold benefits on many worn-out officers, had de- 
livered the State, by the saving in money and by increased efficiency 
of the service from the undesirable condition which had previously 
existed, when retiring allowances were voted in the estimates every 
year, and when men, incapable through advanced age, adhered to 
their positions long after their periods of usefulness had vanished. 
The allowances were to be criticised, however, because they were based 
on the average salary of the last three years rather than the average 
salary of the whole term of service. Mr. Trivett found that the 
provision of invalid pensions had been highly beneficial, and deserves 
a place in any well-devised retirement system, but he also found that 
the contributions in this case had been insufficient for the benefits con- 
ferred and that the benefits, being based not on the average salary, as 
they should have been, but on the annual salary for the last three 
years, were too high. , 

NEED OF RETIREMENT BOARD STILL FELT. 

Having reviewed the mistakes of the past, Mr. Trivett laid stress 
on the " serious fact " that " the same necessity of state, which 
prompted the legislature of 1884 to pass a measure instituting a 



CIVIL-SEEYICE EETIBEMENT IN NEW SOUTH WAIVES. 43 

system of retiring allowances, still existed and would continually 
present for solution the problem of maintaining a public service in a 
high state of efficiency and of ambitious hope, which is a necessary 
accompaniment, by providing for the due retirement of the aged and 
debilitated members of that service on some plan in accordance with 
the humanity and enlightenment of the times." This problem, he 
declared, " can only be solved by a strict observance of business prin- 
ciples in the construction of whatever scheme may be adopted." 

ENDOWMENT ASSURANCE INADEQUATE AS RETIREMENT MEASURE. 

In Mr. Trivett's opinion, that paragraph of the Act of 1895 which 
required officers to effect endowment assurance on entering the civil 
service, did not promise much help. Said he, " The amount of such 
assurance in the case of an average officer, according to the regula- 
tions, will probably not exceed £200 ($973), which, whether regarded 
as the purchase money for an annuity or as the capital for any other 
form of investment, will not be of much value to the recipient. A 
pension system would be the safest measure of insuring satisfactory 
provision for retiring allowances ; and, if the pensioner himself pays 
for the benefit, it would seem that the reasonableness of the proposi- 
tion must be admitted." 

OUTLINE or REQUIREMENTS TOR SAFE PENSION SCHEME. 

In conclusion, Mr, Trivett presented an outline of requirements for 
a pension scheme founded on safe principles and " lessons derivable 
from the history of the civil service sujjerannuation fund.' They are 
as follows: 

(1) Pension should be payable only after age 60, or for ill health. 

(2) Pension granted on the ground of ill health should be subject 
to abatement, actuarially determined, in respect of the period by 
which age 60 is anticipated. 

(3) No gratuities should be allowed. 

(4) The pension rate should be on a moderate scale (a) either hav- 
ing some relation to the average salary, or (b) a fixed rate per annum 
for all pensioners, e. g., the amount which might be fairly regarded 
as a " living " rate. 

(5) The contributions should be on a scale certified as sufficient 
to meet the pension liability, 

(6) Means should be provided, under one control, for keeping the 
pension system under strict and comprehensive supervision, as to 
granting pensions, as to periodic payment, and as to collecting data 
relating to the public service." 

He also made the following significant statement of the contribution 
rates necessary to insure the sufficiency of a superannuation fund 
which aims merely to provide revenues for pensions accruing accord- 



44 CIVIL-SERVICE RETIREMENT IN JnEW SOUTH WALES. 

ing to the normal plan at age 60. A service was assumed with 

salaries in progress as at present in the New South Wales civil service. 

Entry age: 

Under 20 years 5 per cent per annum. 

20 and under 25 years . Si per cent per annum. 

25 and under 30 years 5^ per cent per annum. 

30 and under 35 years 6 per cent per annum. 

35 and under 40 years 6^ per cent per annum. 

Mr. Trivett's conclusion, at the close of New South Wales's experi- 
ment, was that the details of a practicable system could be readily 
worked out if the principles laid down by him were adhered to. " It 
would be in every way regrettable," said he, " if the failure of a sys- 
tem, which had been devised on an unsafe plan, should provide so 
great a prejudice as to permanently prevent the adoption of some 
well-founded retirement fun.d, a most essential attachment to any 
efficient public service." <* 

ENDORSEMENT OF ACTUARY TRIVETt's VIEWS BY CIVIL-SERVICE BOARD. 

In submitting Mr. Trivett's report to the Governor of the colony, 
on November 1, 1902, the Public Service Board indorsed his views in 
the following words : 

Mr. Trivett discusses in his report the terms on which a perfectly 
safe scheme of superannuation could be maintained. With his re- 
marks thereon the Board agree ; but as a question of policy is involved, 
they do not feel called upon to make any recommendation. 

They contented themselves, therefore, with pointing out that the 
fund would become exhausted about the end of the current financial 
year and should then be replenished from the Consolidated Revenue 
in order that faith might be kept Avith the public servants. They 
urged the passage of a short legislative act to give effect to that 
proposal. 

PUBLIC SERVICE (SUPERANNUATION) ACT, 1903. 

OBLIGATIONS TOWARD CONTRIBUTOIIS ASSUMED BY GOVERN- 
MENT. 

In 1903 the disaster, foreseen eight years before when the Act of 
1895 became a law, came to pass. The superannuation account be- 
came exhausted. By that time the civil service employees had con- 
tributed, including the interest earned, no less a sum than £1,100,839 
($.5,357,233). Those who had been joaying into the fund the longest 
and who had paid the most, found themselves in the position of 

"Public Service Board, New South Wales (Supplement to Sixth Annual Re- 
port relating to the superannuation account), November 1, 1902, p. 9. 



CIVIL-SEEVICE RETIEEMEKT IN NEW SOUTH WALES. 



45 



having had their money all absorbed by those who had contributed 
the least. The obligation of the Government being generally admitted 
in the face of these facts, the Public Service (Superannuation) Act, 
1903, was accordingly passed in line with the recommendations of the 
Public Service Board. It provided that henceforth all amounts 
payable to and out of the superannuation account should be paid to 
and out of the Consolidated Revenue Fund. 

The deficiency had been estimated by Mr. Trivett the previous year 
to be £1,761,075 ($8,570,271) ; in other words, that that amount, from 
an actuarial point of view, would be required to place the fund in a 
position to meet all its claims. The state of the fund at the time 
of the last valuation, as at June 30, 1901, was as follows : 



Assets. 


Liabilities. 


Balance to credit 


$87R, 593 

1, 157, 400 

425.819 

279, 795 

8,570,271 


For existing pensions 


$3,953,949- 
6,414,171 


Future contriliutions 




Vote of £3,500 (S17,033) per annum. . . 
Abatement on pensions. 


For refunds to ex-contributors 

Total 


941,848 


Deficienc V 








Total 


11,309,868 


11,309,868 







The Board did not propose that a loan be floated for the purpose of 
paying off this deficiency, but indorsed instead the proposal made by 
the Colonial Treasurer in his budget speech on September 24, 1902^ 
that the necessary amounts be paid, from year to year, as necessity 
arose, out of the Consolidated Revenue. " The amount to be pro- 
vided will decrease every year," said he, " and at the end of forty- 
four years it is computed that all claims will cease." 

The act providing for the payment of superannuation allowances 
out of the Consolidated Revenue on the exhaustion of the superannua- 
tion account was accordingly passed on October 19, 1903. The second 
section reads as follows : °' 

2. Notwithstanding anything in section 70 of the Public Service 
Act, 1902 [consolidated from Public Service Act, 1895], when the 
Governor is advised that the superannuation account has become ex- 
hausted, he shall so certify, and on such certificate being given — 

(a) All deductions under section 53 of the Civil Service Act of 1884^ 
as amended by the act 59 Victoria, No. 25, from the salaries of jDersons 
shall be paid into the Consolidated Revenue Fund; 

{h) All superannuation allowances j)ayable under the Civil Service 
Act of 1884 and the Public Service Act, 1902, to any persons shall 
continue to be paid to such persons in accordance with the provisions 
of the said acts, but shall be paid from the Consolidated Revenue 
Fund ; 

{c) All persons being contributors to the superannuation account 
at or after the commencement of this act and becoming entitled to 

« Public Service (Superannuation) Act, 1903. New South Wales. 



46 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 

superannuation allowances shall be paid and shall receive out of the 
Consolidated Revenue Fund allowances to be calculated at the same 
rates and for the same periods as superannuation allowances payable 
and receivable from the said account before the commencement of 
this act; 

(d) Every person who, having been in the civil service, had a 
superannuation allowance computed or assigned at any time before 
the commencement of this act consequent on his acceptance of another 
office under the Crown which he now holds, but who is not receiving 
such allowance, shall, upon retirement from such office, be paid from 
the Consolidated Revenue Fund such allowance in accordance with 
the provisions of the Civil Service Act of 1884 and the Public Service 
Act, 1902 ; 

(e) All amounts of refunds and interest theretofore payable out 
of the superannuation account, under section 62 of the act 59 Victoria, 
No. 25, or section 73 of the Public Service Act, 1902, and all gratuities 
payable out of such account under section 51 of the Civil Service Act 
of 1884, shall be paid out of the Consolidated Revenue Fund : 

Provided, That the annual sum of £3,500, payable out of the Con- 
solidated Revenue Fund, under setion 43 of the Constitution Act, 
1902, shall be payable each year in satisfaction of the claims of such 
officers as are or may become entitled to be paid thereunder. 

So the matter stands to-day — the obligation of the Government 
decreasing as the number of pensioners grows smaller every year with 
the death of those who were in the service prior to the passage of the 
Act of 1895. In the meantime, those who have come into the service 
since that date have only their endowment insurance to look to for 
support after they reach the age of retirement. 

CONCLUSIONS. 

The contributory plan devised for the retirement of superannuated 
members of the civil service in New South Wales failed because it 
was unsound and inequitable. The experience of this colony shows 
that, in order to be satisfactory, a contributory plan must be based 
on the following fundamental principles : 

The contributions should be placed in a fund and invested at inter- 
est under guarantee of the Government, a separate account being kept 
with each contributor. Under the Act of 1884 the contributions were 
funded and invested at interest. Careful attention was not given, 
however, to the matter of interest in all cases. As pointed out by the 
actuary in the first triennial report, the Government ignored the 
interest factor in retiring officers because of abolition of office, paying 
to the superannuation fund the back contributions of 4 per cent with- 
out the interest that would have accumulated on these contributions, a 
practice severely condemned also by the actuary in the second investi- 
gation. AVhile the contributions were put into a fund and invested 
separately from other government funds, no account was kept with 



CIVIL-SEKVICE RETIREMENT IN NEW SOUTH WALES. 47 

each contributor. The assets were commingled, those received from 
contributors of all ages and all salaries being indistinguishably 
merged with each other. Even had the fund been found at each 
actuarial investigation to be entirely sound, that would merely have 
shown that the contributions in the aggregate were sufficient to pay 
the pensions; it would not have proved that the plan was equitable 
as between individual members and that the amount contributed was 
in each case commensurate with the amount received. 

The amount of contributions should be determined by the amount of 
the annuity to be granted under the pension scale adopted. There 
was no relation or ratio at all under the New South Wales 
plan, between the amount contributed and the annuities received. 
The flat-rate deduction of 4 per cent of salary for all ages and on 
all salaries was inequitable as between individuals of different ages 
and different salaries. The inadequacy of the contributions to pro- 
vide for the benefits was pointed out by each of the three actuaries 
who reported on the fund. The principle that the percentage of de- 
duction from salaries should vary with the age of entrance into the 
service, though he tried to strike an average, was pointed out by Mr. 
Teece, in the first actuarial examination. It was brought out with 
emphasis by Mr. Trivett also, in the second examination. The anal- 
ysis made by these two actuaries of New South Wales' scheme shows 
conclusively that flat-rate assessments are unscientific and disastrous. 
I'he annuity should be based on the amount of salary and the length 
of service. As the length of service depends naturally on the age of 
entrance into the service, the percentage of deduction from salary 
necessary to provide the required annuity must vary with the entrance 
age. 

There must be a sharp differentiation between accrued liabilities and 
future liabilities. In each actuarial investigation made by the three 
different actuaries employed to value the NeAV South Wales fund great 
emphasis was laid on the fact that a failure to differentiate between ac- 
crued liabilities and future liabilities was one of the chief causes for 
the insolvency of the fund. The " enormous dormant liability " with 
which the fund was burdened was counted among the causes of fail- 
ure by Mr. Teece ; " the accrued, albeit unperceived, debt " which 
overshadowed the fund from the beginning was held partly account- 
able for its state of insolvency by Mr. Coghlan. The inability of the 
government endowment of £100,000 ($486,650) to meet the initial 
liability which the fund carried on account of the civil service was 
held by Mr. Trivett to have condemned the plan from the beginning. 
Here was an absolute agreement of experts amply sustained by the 
facts. No more striking illustration could be asked of the principle 
that contributions made by present employees should be held in re- 



48 CIVIL-SERVICE EETIEEMENT IN NEW SOUTH WALES. 

serve to pay their future pensions, and that accrued liabilities — pen- 
sions for past services — should be paid by the State. 

Provision should be made for the refund of contributions in case 
of separation from the service. A slight consciousness of the 
wisdom and justice of such a provision was shown by the Civil 
Service Board in its report to the Governor of the colony 
after the second triennial investigation. Cases of contributors 
to the fund dying in harness and leaving widows in necessitous 
circumstances had been frequently brought to their attention. It 
seems to have occurred to them, about this time, that instead of dis- 
j^ensing gratuities to the widows and children of such emploj^ees it 
would have been more rational and satisfactory to have given them a 
right to the sums contributed by those employees. 

The New South Wales experience shows that the amount of the 
retiring allowance should be calculated on the basis of the average 
rather than the final salary. Besides being a more scientific method 
of calculation, this method recommended itself on the score of econ- 
omy to the various actuaries consulted. Mr. Teece suggested that 
the most equitable way to accomplish a reduction in the rate of 
pensions was to base the amount of pensions on the average salaries 
instead of on those of the last three years. Mr. Trivett recommended 
as more equitable and more economical an average salary deduced 
from the aggregate salary as the basis for calculating the amount of 
the pension. Mr. Coghlan acknowledged this method as the scien- 
tific one but contented himself with recommending as a basis for 
calculating the pension the average salary for the last seven years of 
service instead of that for the last three years. 

A provision for life insurance is a desirable adjunct to a retirement 
measure, but will not do as a substitute. The desirability of it Avas 
doubtless impressed on the Civil Service Board of New South Wales 
by virtue of its difficulties with the widows and orphans of employees 
who died in the service. It is to be commended as having a tendency, 
through the operation of medical selection in the choice of candidates, 
to raise the standard of general efficiency in the service. As a substi- 
tute for a proper retirement measure it is, however, inadequate, as 
pointed out by Mr. Trivett in his last report. Nor is the necessity for 
it so apparent, under a proper contributory plan, where provision is 
made for the refund of contributions in case of withdrawal from the 
service, save in the younger ages before the employees' contributions 
are adequate as a protection for his family in case of death. 

No gratuities should be allowed under a model retirement plan. 
They lead to abuses of all kinds. They are not needed for the de- 
pendents of such employees in case contributions are returned or in- 
surance is provided. Mr. Teece regarded the payment of gratuities 



CIVIL-SERVICE RETIEEMENT IN NEW SOUTH WALES. 49 

to relatives of deceased officers as " repugnant to the principles of a 
superannuation scheme." Mr. Coghlan advised the discontinuance of 
gratuities to relatives of deceased officers and the substitution of in- 
surance benefits instead. Condemnation was also expressed of the 
payment of gratuities under any circumstance, and especially to em- 
ployees who leave before attaining pension age, showing that the 
practice complicates and renders more or less uncertain the mathe- 
matical calculations on the accuracy of which the solvency of the 
fund must depend. 

Provision for retirement in case of disability is a valuable and 
necessary part of a retirement plan, but care should be taken that the 
provision is calculated on a sound mathematical basis of facts. Mr. 
Trivett pointed out, in his last report, that the contributions had 
been insufficient to provide the invalid pensions. As stated in review- 
ing that report, he showed that pensions granted before the regular 
age of retirement, on the ground of ill health, should " be subject to 
abatement, actuarially determined in respect of the period by which 
age 60 [the legal retirement age under the New South Wales law] is 
anticipated." 

Granting allowances to officers leaving the service before the age 
of retirement by reason of the abolition of their offices leads to grave 
abuses and was the most striking, though not the most essential, 
cause of the failure of the New South Wales plan. Such a practice 
would enable the best of pension systems to " become the sport of 
political necessities," to use the phrase of Mr. Coghlan, and it is, as 
Mr. Trivett said, " entirely beyond the scope of any pension system 
where solvency is in the remotest degree entertained." It is not 
fair that a departmental change working to the advantage of the 
Government, and it alone, should be charged to the account of the 
body of employees. Nor would it seem to be at all necessary, in 
most cases, that such a change should be, on the other hand, a loss 
in any way to the Government, since places could usually be found 
for the incumbents of abolished offices in other departments until 
such time as they reach pensionable age and can legitimately, with- 
out prejudice to the fund, leave the service. 



8 D— 61-2— Vol 59 25 



APPENDIX D. 



THE HAMILL, MAHEK, AND CUMMINS BILLS. 



THE HAMILL BILL. 

[H. R. 9242, Sixty-second Congress, first session.] 
A BILL To provide for tlie retirement of employees in the civil service. 

Be it enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled, That beginning with the first day of July next following the 
passage of this act all employees in the classified civil service shall be eligible for 
retirement as hereinafter provided . 

Sec. 2. That any employee who has served the United States for thirty years or 
more and who shall have attained the age of sixty years or over shall receive fifty per 
centum of the average annual salary, pay, or compensation he may have received 
for the five years next preceding his retirement. Any employee who has served the 
United States for a period of from twenty-five to thirty years and who shall have 
attained the age of sixty-two years or over shall receive forty-five per centum of the 
average annual salary, pay, or compensation he may have received for the five years 
next preceding his retirement. Any employee who has served the United States for 
a period of from twenty to twenty-five years and who shall have attained the age of 
sixty-five years or over shall receive forty per centum of the average annual salary, 
pay, or compensation he may have received for the five years next preceding his 
retirement. 

Sec. 3. That no employee provided for in this act shall be retained in the service 
after arriving at the age of seventy years. 

Sec. 4. That the payments provided for in this act shall be paid quarterly 
throughout the life of the employee. 

Sec 5. That any employee to whom this act applies who has served the United 
States for not less than five years and who, by reason of accident or illness not due to 
vicious habits and without fault or delinquency on his part, has become disabled, 
shall be retired from the service on certificate from the head of the department or 
independent office in which he is employed to the Secretary of the Treasury, setting 
forth such disabilities, and on the approval of the Secretary of the Treasury he shall 
receive thirty per centum of his average annual salary, pay, or compensation for the 
five years next preceding his retirement for from five to ten years of service; forty per 
centum for from ten to twenty years of service; fifty per centum for twenty-one yeai;g 
and over. 

Sec. 6. That for the purposes of this act the period of service shall be computed from 
original employment, whether as a classified or unclassified employee, and shall 
include periods of service at different times and service in one or more departments, 
branches, or independent offices of the Government, the Signal Corps prior to July 
first, eighteen hundred and ninety-one, and the general service in or under the War 
Department prior to May sixth, eighteen hundred and ninety-six. 

Sec 7. That the Secretary of the Treasury is hereby authorized and directed to 
pay, out of any moneys in the Treasury not otherwise appropriated, a sum sufficient 
to carry out the purposes of this act. 

Sec 8. That the Secretary of the Treasury is hereby authorized to perform, or cause 
to be performed, any and all acts and to make such rules and regulations as may be 
necessary and proper for the purpose of carrying the provisions of this act into full 
force and effect. 

3 



4 THE hajMILl^ mahee. axd citmmixs bells. 

THE MAHER BILL. 

[H. K. 19399.. Sixty-second Congress, second session.] 

BILL To provide for the retirement of employees in the classifled civil service in post offices of the first 

and second class. 

Be it enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled, That beginning with the first day of July next following the 
passage of this act all employees in the classified ci\Tl sen-ice in post offices of the 
first and second class shall be eligible for retirement as hereinafter provided. 

Sec. 2. That any employee in the classified ci\"il sen-ice in post offices of the first 
and second class who has served the United States for thirty years or more and who shall 
have attained the age of sixty years or over may retire and shall receive fifty per 
centum of the average- annual salary-, pay, or compensation he may have received 
for the five years next preceding his retirement. An employee in the classified ci^^l 
sen-ice in post offices of the first and second class who has sen-ed the United States for 
the period of from twenty-five years to thirty years and who shall have attained the 
age of sixty-two years or over may retire and shall receive forty-five per centum of the 
average annual salary-, pay. or compensation he may have received for the five years 
next preceding his retirement. Any employee in the classified ci^-il sen-ice in post 
offices of the first and second class who has served the United States for the period of 
from twenty to twenty-five years and who shall have attained the age of sixty-five 
years or over may retire and shall receive forty per centum of the average annual 
salar}-, pay, or compensation he may have received for the five years next preceding 
his retirement. 

Sec. 3. That no employee pro^-ided for in this act shall be retained in the sen-ice 
after arri\-ing at the age of seventy years. 

Sec. 4. That the payments provided for in this act shall be paid quarterly through- 
out the life of the employee. 

Sec. 5. That for the purpose of this act the period of se^^-ice shall be computed from 
original employment, whether as a classified or unclassified employee, and shall 
include periods of ser^-ice at different times and sen-ice in one or more departments, 
branches, or independent offices of the Government. 

Sec. 6. That the Postmaster General is hereby authorized and directed to pay. out 
of any moneys accruing from the lapsed salary of employees in the classified civil 
ser^-ice in post offices of the fir^t and second class, absent without pay where no sub- 
stitute is employed, and moneys accruing from the failure to fill vacancies imme- 
diately, and moneys accruing when the force is reduced temporarily when vacancies 
occur, and moneys accruing from post-office money orders issued and not presented 
for payment, a sum sufficient to carry out the purpose of this act. 

Sec 7. That the Postmaster General is hereby authorized to perform or cause to be 
performed any and all acts and to make such rules and regulations as may be neces- 
sary and proper for the purpose of carr\-ing the provisions of this act into full force and 
effect. 



THE CUMMINS BILL. 

[S. 5863, Sixty-second Congress, second session.] 
A BILL For the retirement of employees in the ci^•il service, and for other purposes. 

Be it enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled, That from and after the date at which this act takee effect the 
employees of the permanent classified civil se^^•ice of the United States, except 
postmasters, shall, for the purposes of this section, be divided into two groups as 
follows, to wit: 

Group one shall consist of the following-described employees, to wit: Railway 
mail clerks, city letter carriers, rural letter carriers, and mechanics. 



THE HAMILL, ZNIAHEE, AXD CUMMIX5 BILLS. 5 

Group two shall consist of the following-described employees, to wit: All employees 
not in group one. 

That each employee falling within group one shall retire from the classified civil 
ser^nce of the United .States upon arriving at the age of sixty-five years, and each 
employee falling within group two shall retire from such ser^dce upon arri^-ing at the 
age of scA'enty years: Provided, however. That if within thirty days before any such 
employee reaches the retiring age the head of the department or independent ofiice 
in which he is employed certifies to the Secretary of the Treasury- that by reason of 
his special efficiency and his wilKngness to remain in the ser\-ice a continuance of such 
employee therein would be advantageous to the public servace, such employee may 
be retained for a term not exceeding two years, and at the end of the two years he may, 
by similar certification, be continued for an additional two years, and so on: Provided, 
however. That after the first day of July, nineteen hundred and sixteen, no person 
belonging to any of the classes of employees enumerated in group one or group two 
of this section shall be continued in the sen-ice beyond the ages of retirement as herein 
pro Aided. 

Sec 2. That beginning with the first month after this act takes effect, and monthly 
thereafter, there shall be deducted and withheld from the salarj-, pay, or compensa- 
tion of everj- employee in the classified ci^-il ser^-ice of the United States, except 
postmasters, who shall enter the service after such date, an amount, computed to the 
nearest tenth of a doUar that will be sufficient, with interest thereon at four per centum 
per annum, compotiuded annually, to accumulate for each such employee on arrivirg 
at the age of retirement, as hereinbefore proA-ided, the sum of five thousand dollars: 
Provided. That no deduction shall be made from any such employee while receiA-ing 
less than six hundred doUars per year: And provided further, That no deduction shall 
be more than ten per centum. 

Sec. 3. That the amounts so deducted and withheld from the salarj-, pay, or com- 
pensation of each such employee shall be deposited in the Treasury of the United 
States, and shall be credited, together with the interest at four per centum per annum 
compounded annually, to an indiA"idual account of the employee from whose salarj-, 
pay, or compensation the deduction is made. The money so deducted and the income 
derived therefrom may from time to time be deposited in sa%-ings banks designated by 
the Secretary- of the Treasury for that purpose: Provided, however. That the saA-ings 
banks receiA-ing such deposits shall pay interest thereon at a rate of not less than four 
per centum per annum, compounded anuually. For the safe-keeping and prompt 
paj-ment of the money deposited with them the Secretan,- of the Treasurj^ shall reqtiire 
the saA-ings banks to give satisfactory- security, by the deposit of bonds of the United 
States, bonds or other interest-bearing obligations of any State of the United States, 
or any legally authorized bonds issued for municipal purposes by any city or town in 
the United States which has been in existence as a city or town for a period of twenty- 
five years, and which for a period of ten years preA-ious to such deposit has not defaulted 
in the paj-ment of any part of either principal or interest of any funded debt authorized 
to be contracted by it, and which has at such date more than twenty-five thousand 
inhabitants, as established by the last national census, and whose net indebtedness 
does not exceed five per centum of the valuation of taxable property therein, to be 
ascertained by the last preceding valuation of property- for the assessment of taxes; or 
any legally authorized bonds issued for municipal purposes by any city or town in the 
United States which has been in existence as a city or town for a period of twenty-five 
years, and which for a period of ten years pre^-ious to such deposit has not defaulted in 
the paj-ment of any part of either principal or interest of any funded debt authorized 
to be contracted by it, and which has at any such date more than two hundred thousand 
inhabitants, as established by the last national census, and whose net indebtedness 
does not exceed seven per centum of the vakiation of taxable property therein, to be 
ascertained by the last preceding valuation of property for the assessment of taxes. 



6' THE HAMILL, MAHER^ AND CUMMINS BILLS. 

In this clause the words "net indebtedness" mean the indebtedness of any city or 
town, omitting debts created for supplying the inhabitants with water, and debts 
created in anticipation of taxes to be paid within one year, and deducting the amount 
of sinking funds available for the payment of the indebtedness included. The Secre- 
tary of the Treasury shall accept, for the purpose of this act, securities herein enumer- 
ated in such proportions as he may from time to time determine, and he may at any 
time require the deposit of additional securities, or require any bank to change the 
character of the securities already on deposit. It shall be the duty of the Secretary 
of the Treasury to obtain information with reference to the value and character of the 
securities authorized to be accepted under the provisions of this section, and he shall 
from time to time furnish information to savings banks as to such bonds as would be 
accepted as security. When consivStent with the best interest of the fund created by 
this act, the Secretary of the Treasury shall distribute the deposits herein provided for, 
as far as practicable, equitably between the different States and sections. 

If for any reason the Secretary of the Treasury shall not be able to make satisfac- 
tory arrangements with savings banks for all the fund, then he may invest the balance 
in any of the aforementioned securities. 

. The moneys deducted from salaries and the income derived therefrom shall be 
held and deposited, or invested as above described, by the Secretary of the Treas- 
ury until paid out as hereinafter provided. Any deficiency in the fund hereby 
created to carry out the provisions of this act shall be paid out of any money in the 
Treasury not otherwise appropriated. 

For the purpose of aiding the Secretary of the Treasury in depositing and investing 
the funds created by the act, a board of investment is hereby created, composed of the 
Treasurer of the United States, the Comptroller of the Currency, and two persons to 
be designated by the President from among the employees of the classified civil serv- 
ice. The members of the board of investment shall be sworn and shall hold office 
until others are appointed and qualified in their stead. 

Sec. 4. That when any such employee reaches the retiring age, as aforesaid, and 
retires from the service, the United States shall pay him the said sum of five thou- 
sand dollars, or such lesser sum as may be the result of his contributions, and any such 
additional sum, if any, as has been accumulated from his contributions by any excess 
of interest over four per centum per annum, compounded annually, actually received 
by the United States thereon; and if any such employee is retained in the service 
after reaching the retiring age, a deduction of ten per centum of his monthly salary, 
pay, or compensation shall thereafter be made while he remains in the service, and 
the same shall be treated as other deductions under section two of this act. 

Sec. 5. That upon absolute separation from the civil service by resignation or dis- 
missal prior to the retiring age and only ujaon such separation, there shall be paid to 
any such employee a sum made up of the sums so deducted from his salary, pay, or 
compensation, with simple interest only: Provided, however, That upon separation 
from the service by resignation or dismissal within less than five years after his admis- 
sion thereto such employee shall be paid his contributions without interest. 

Sec. 6. That in the case of the death of any such employee while in the service, there 
shall be paid to the person or persons entitled to collect and receive his personal 
estate a sum made up of the amounts so deducted from his salary, pay, or compensa- 
tion, together with interest thereon at the rate of four per centum per annum, com- 
pounded annually. 

Sec. 7. That no employee who has received payment under section four of this act 
shall be reinstated in the classified civil service until he deposits with the United 
States the sum so paid, together with interest at four per centum per annum, com- 
pounded annually, in which case the sum shall be replaced to the credit of his account, 
and the former period of his service shall be reckoned as a part of his entire service. 



THE HAMILL.^ MAHEE^ AND CUMMINS BILLS. 7 

Sec. 8. That every employee in the classified civil service of the United States at 
the time this act takes effect, except postmasters, who entered the employ of the 
Government whether as a classified or unclassified employee, shall within ninety days 
after that date notify the head of the department in which he is employed, in writing, 
whether he desires to make the payments and be accorded the privileges hereinafter 
specified. If no such notice is given, it ^vill he held as the equivalent of a notice 
that he does not de.sire to make the payments or be accorded such privileges, and the 
notice once given shall be final. 

If the notice aforesaid is in favor of making the payments and receiving the privileges, 
then, beginning with the first month after the giving of such notice, there shall be 
deducted and withheld from the salary, pay, or compensation of every such employee 
a sum (computed to the nearest tenth of a dollar) equal to six per centum of his monthly 
salary, pay, or compensation: Provided, hov;ever,Th.3it the sums so deducted and with- 
held monthly, together with the interest thereon at four per centum per annum, com- 
pounded annually, .shall not be more than sufficient to pro^'ide five thousand dollars 
in one cash sum when the employee from whose salary, pay, or compensation the de- 
ductions are made shall reach the age of retirement as hereinbefore pro"\dded. So 
long as such employee remains in the ser\-ice such deductions from his salary, pay, or 
compensation shall be made each month, and shall be dealt with as provided in the 
foregoing sections for employees entering the service after the date this act takes effect. 
In any such case there shall be paid to the employee when he retires from the service, 
whether on account of age, resignation, or dismissal, a sum made up of the amounts so 
deducted, together with interest at four per centum per annum, compounded annually, 
with such additions, if any, as are the result of the Government ha^dng collected and 
received more than the said rate of interest. There shall be paid to each such employee 
who reaches the retiring age in the ser-\-ice a further sum determined as follows: 

To each such employee who retires on account of age within one year after this act 
takes effect, three thousand dollars; and to each such employee retiring thereafter at 
the age of retirement three thousand dollars, less one hundred and fifty dollars for 
each full year which shall have elapsed between the date this act takes effect and the 
date such employee so retires. 

Sec. 9. That evsrj' person to whom section two of this act applies, or who gives the 
notice required in section eight, shall be deemed to consent and agree to the deductions 
made and pro\'ided for in sections two and eight, and shall receijit in full for the 
salar\-. pay, or compen-sation which he may be paid monthly or at any other time, 
and which pa\Tnent shall be a full and complete discharge and acquittance of all 
claims or demands whatsoever for ser\'ices rendered by such person during the period 
covered by such deductions or paj-ments, except the sum to be paid upon separation 
from the ser^dce; notwithstanding the provisions of sections one hundred and sixty- 
seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Revised 
Statutes of the United States, or of any other law, rule, or regulation affecting the 
salary, pay, or compensation of any such person or persons employed in the clai«&ified 
ci\"il service. 

Sec. 10. That the Secretary of the Treasury shall prepare and keep all needful 
tables, records, and account.^ required for carrjdng out the pro\'kions of this act. He 
shall make a detailed comparative report annually to Congress showdng all receipts 
and disbursements under the pro\-ision.s of this act, together with the total number 
of persons who received paj-ments hereunder and the amounts paid to each of them. 

Sec. 11. That whenever any person becomes separated from the classified service by 
reason of appointment in the uncla.«sified service, such separation shall not operate to 
take him out of the provisions of this act. The President shall have power, in his 
discretion, to exclude from the operation of this act any employee whose tenure of 
office is intermittent or of uncertain duration. 



8 THE HAMILL, MAHER^ AND CUMMINS BILLS. 

Sec. 12. That the contributions with their accumulations provided for in this act 
shall not be assignable either in law or equity or be subject to execution or levy by 
attachment, garnishment, or other legal process while in the possession of the United 
States. 

Sec. 13. That for the clerical and other service and all other expenses and dis- 
bursements necessary in carrying out the pro\'isions of this act during the fiscal year 
nineteen hundred and thirteen, including salaries and rent in the city of Washington, 
there is hereby appropriated the sum of dollars, out of any money in the Treas- 

ury not otherwise appropriated, to be available until expended. 

Sec. 14. That the Secretary of the Treasury is hereby authorized to perform or cause 
to be performed any and all acts and to make such rules and regulations as may be 
necessary and proper for the purpose of carrying the provisions of this act into full 
force and effect. 



APPENDIX E. 



SCHEDULE CALLING FOR INFORMATION WITH 
REGARD TO EMPLOYEES. 



SCHEDULE CALLING FOR INFORMATION WITH REGARD TO 

EMPLOYEES. 

No. ... 



(This stub to be detached before returning schedule to commission.) 

Name, 

[Perforation.] 

No 

The President's Commission on Economy and Efficiency. 

Department, Bureau, 

1. Sex, 

2. Description of work, 

3. Class of work: 

(a) Subclerical work, requiring some special skill or involving personal 

responsibility, but not clerical or mechanical in its nature D 

Examples of such work are duties ordinarily required of messengers, 
watchmen, classified laborers, sorters, counters, etc. 

(b) Clerical work of a simple or routine character, requiring care, accu- 

racy, and skill D 

Examples of such work are mere copying and typewriting; simple index- 
ing; filing cards and papers; briefing contents of letters or documents on 
back; preparing letters by fillitig blank forms for official signature; mailing 
or dispatching; easy stenography; simple bookkeeping, requiring but little 
knowledge of the theory of accounts. 

(c) Clerical work of a routine character, requiring but little original 

thought or consideration, but requiring judgment, responsibility, 

and special skill D 

Examples of such work are preparing briefs of papers in a case for record- 
ing; expert filing; examining property returns; proof reading; issuance 
and distribution of supplies; examining vouchers and disbursing accounts, 
under the application of simple standards or requirements; recording cases 
and transactions where considerable judgment is required to determine the 
relative importance of factors, and preparing an adequate index thereof; 
the ascertaining of facts independently and drafting action on average 
cases; composing and preparing letters for official signature; stenography 
requiring skill and practice; bookkeeping involving a knowledge of the 
theory of accounts and departmental records and precedents. 

(d) Work more or less routine, involving responsibility, special ability, 

and original thought, consideration, and investigation Q 

Examples of such work are directing and instructing clerks of lower 
grades; expert stenography; editing; the ascertaining of facts independently 
in complicated cases, and drafting action thereon; serving as confidential 
clerk to head of department or bureau; bookkeeping involving an extended 
knowledge of department records and precedents and the handling of intri- 
cate accounts; recording complex and difficult cases and properly indexing 
the same; service in purchasing and issuing supplies; service as paying 
teller; examining money accounts requiring familiarity with the laws and 
with regulations and requirements of the Treasury Department. 

3 



INFOKMATION WITH REGARD TO EMPLOYEES. 

3. Class of work — Continued. 

(e) Work largely supervisory, or requiring the highest order of clerical 
ability, involving much original thought, consideration, and in- 
vestigation □ 

Examples of such work are the investigation of large and intricate cases, 
requiring familiarity with the laws and decisions of courts and with de- 
partment practice and policy, and the drafting of action thereon; the 
conduct of such investigations with the aid of assistants, whose work must 
be directed and correlated; service as paying teller with large responsi- 
bility; acting as chiefs of sections or divisions, and preparing or laying out 
work for others. 

(/) Work of a supervisory, executive, and administrative character Q 

Examples: Duties ordinarily required of chiefs of divisions and chief 
clerks. 
(g) Professional, scientific, and technical Q 



(h) Skilled trades. 



a 



4. War veteran (Answer "Yes" or "No") 

5. Age at last birthday 

6. Compensation: Annual, $ Per diem, $ 

(Answer here if on annual basis.) (Answer here if on per diem basis.) 

7. Aggregate years of service (include all periods except military and naval) ... 

8. State the usual salary now paid in your bureau or office to the efficient employee3 

engaged on the class of work assigned to the employee here rated, | 

9. Rating in tenths on quantity of work performed by employee rated: 

(Note. — Ten-tenths represents the quantity of the same class of work 
performed by an efficient employee receiving the salary stated in answer 
to Question No. 8.) 



0/10 


1/10 


2/10 


3/10 


4/10 


5/10 


6/10 


7/10 


8/10 


9/10 


10/10 

























10. Rating on quality of work: 

"Excellent." — An employee should be rated "Excellent" when he is 
performing the highest quality of service in the grade to which he is regu- 
larly assigned — that is, when he has reached the maximum of efficiency. 
This implies that on occasions when there is need of ingenuity and initiative 
the employee is resourceful and equal to assuming responsibility. 

"Very good." — An employee should be rated "Very good " when he per- 
forms exceptionally satisfactory service, which, however, falls slightly 
below the standard of "Excellent" in that the employee lacks ingenuity 
or power of initiative. 

"Good." — An employee should be rated "Good" when his work is 
acceptable and worthy of commendation but not exceptionally so. 

"Fair." — An employee should be rated "Fair" when his work is some- 
what inferior, compared with ordinary, acceptable service, being charac- 
terized by a defective performance of duties. 

"Poor."— An employee should be rated "Poor" when his work is dis- 
tinctly inferior to ordinary, acceptable service. 

"Very poor." — An employee should be rated "Very poor" when his work 
is extremely unsatisfactory in quantity or quality, or both, but not so 
unsatisfactory as to be wholly wortliless. 



INFORMATION WITH EEGARD TO EMPLOYEES. 5 

10. Rating on quality of work — Continued. 

"Nonproductive." — An employee should be rated "Nonproductive" 
when his work is either wholly worthless or so faulty as to consume a large 
amount of a second person's time in revising it. 



Nonproductive. 


Very- 
poor. 


Poor. 


Fair. 


Good. 


Very 
good. 


Excel- 
lent. 

















ll. Value of serAaces (not necessarily actual compensation) of employee rated: 

Annual, $ Per diem, $ 

(Answer here if on annual basis.) (Answer here if on per diem basis.) 



Chief of Bureau or Office. 



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